Collect Those Overdue Payments, Without Hiring A Collection Agency

By Randall Orser | Small Business

Debt concept TNCollecting past-due accounts can be a hassle for any small business owner. The process can spoil customer relations and waste valuable time. But there are ways to collect payments without the headache of hiring a collections agency or going to small claims court.

Try these four steps to help ease the woes of collections:

Credit Cards

Customers who know they can pay in installments may be more likely to do business with you. Overdue payment issues land between the customer and the credit card company—the business owner is removed from the equation. There are fees for accepting credit cards, so do your research. American Express (Amex) tends to be the most expensive; however, if you are dealing with wealthier clients you may want to accept Amex. Look at your industry association, Chamber of Commerce, Board of Trade, Canadian Federation of Independent Business, etc. as you get a discount on merchant fees through these associations.

Advance Payment

Retainers followed by additional paymentsas the job proceeds increase chances of being paid the full amount. Collect one-third up front; one-third midway through the service; and a final payment upon completion. Work out the percentage that works best for you and the client. You may want to get at least materials costs up front so you’re not out that amount. If your business is mostly labour, you may want to get a good portion to cover your labour costs. 

Transfer Collections Duties

Hire a part-time employee to handle your past due accounts. Your staffer can closely monitor accounts, which could shorten collections times. This strategy also alleviates tension between the business owner and the late-paying customers. Sending statements is also a good idea; there are business people who wait for a statement before paying anything. Plus, there’s no excuse for a missed invoice as they got a statement.


Prepare basic contracts in advance and ask customers to sign off on a payment schedule and a specific work plan to reduce the chance of misunderstandings over the service and the payment. Always have a scope of work when working on a project basis, this way the customer can’t complain when you say ‘sorry that’s extra’. Construction is great at this, and anything not in the scope is a ‘change order’, and an extra cost that’s invoiced separately. It even pays to have a ‘scope of work’ for any business, especially a service business. Let the customer know what they’re getting for the price they’re paying.

While the above tips won’t stop all bad debts, they can alleviate the headaches of trying to collect monies owed to your business. Sadly, bad debts are just a part of doing business, so do as much as you can to nip them in the bud.

About the Author

Bookkeeper Extraordinaire Number Crunchers® Financial Services Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.