It's A Sales Problem
Sarah has a small landscaping business. She has trouble collecting money from a select few clients. Should she hire a collection agency?
QUESTION: Sarah in Nashville has a small landscaping business. She has trouble collecting money from a select few clients. Should she hire a collection agency?
ANSWER: Never hire a collection agency. You don’t have a collections problem; you have a sales problem. The relationship with these people has been established wrong. They are under the impression they can pay you whenever they want. That’s a wrong relationship, isn’t it? That’s not a collections problem. There’s not a technicality or a law problem here. There’s an expectations problem. They don’t have the expectation that they have to pay on time.
What I would do is sit down with them and say, “Listen, we would love to continue to do business with you. We want to continue to serve you. We want to continue to take care of you, but here’s the situation. We’re small, and we’re not big enough to be your bank. In the future, here’s what this is going to look like. When I bill you, you’re going to pay me the next day.” If they don’t do that, then you’re not going to be able to do business with them. You don’t want bad business. Business where you do work and never get the money … you could’ve stayed home and done that, so there’s no point in it. And as you said, it’s a select few. They’ve got misbehavior problems, and they’ve got expectation problems.
Let me tell you what’ll happen. When you sit down with all five and you clearly, calmly, and firmly explain we’re not playing this game anymore, you’re going to lose two or three of them because they’re bad customers, and you don’t need them anyway. The others will straighten up.
If you’ve got one who won’t respond to phone calls or visits, you’re going to have to sue him, because he’s not going to pay you. It’s worth it because it’s small claims court, and you can probably do it for a few hundred bucks. Here’s what I would do in that case. I would send him a letter, return receipt requested, today. The letter says, “I’ve tried emailing. I’ve tried calling. I’ve tried mail. I’ve tried knocking on your door, and you won’t even answer the door. Here’s what I’m going to do. If I do not have my money in three days, I’m going to file suit.” And give the date. Then file suit. Don’t spend very much money, though, because he’s probably broke.
You’re probably not going to get your money. That money is probably gone. You probably shouldn’t have done business with him in the first place. Extending credit to broke people is not his fault. That’s your fault. That’s what I mean by you don’t have a collections problem. You’re probably not going to get that money. That means you’re probably going to have to learn how to select your clients more carefully. When you do that, then you’re going to have less of a collections problem. I do not tolerate people in our business paying us late. I have a zero tolerance for it. You’re going to pay me or we’re going to have a problem. That simple.