One of the hardest things to manage at Cedarcrest is late-paying customers. Sometimes it seems the time and energy spent on late and non-payers overwhelms in magnitude the actual amounts owed.

Given the direction of the economy in many areas of the country, I suspect a majority of small businesses will see an uptick in late and non-paying customers in the coming year. It’s a good idea to have a mind-set and a plan of action for what to do when payments don’t come in.

The mind-set part can be difficult. First, I try to tell myself: “it’s not personal.” By that I mean, the non-paying customer probably did not select me and my business to default on, but rather, that customer’s situation is tough all over. My business just happened to be the one to suffer. I find if I can depersonalize the affront of non-payment, I have an easier time making a plan.

The second part of a helpful mind-set is this: I have to understand that collecting payments due is going to cost money and time, one way or another. Be prepared to spend both money and time to get your money back.

In making a plan on how to recover money due to you, I think there’s an initial decision to be made depending on the situation. Can you manage the late payer yourself, do you need a collection agency, or do you need a collection attorney?

In the first case, I think you should only attempt to collect money yourself if you believe there’s a very high likelihood of success, without an adversarial relationship developing. The debt collection industry is highly regulated, and you do not want to be collecting certain types of debt without a license.

I think the second plan, using a collection agency, makes sense if you have a reasonably large number of uncollected debts, with a high degree of uncertainty about collectability. Collection agencies typically work on a contingency basis, charging between 20-40% of every dollar they bring in. They can quickly work on high probability debts and usually can bring money in the door within the first month.

How do you find an agency? I would start with the self-regulating trade group for collection agencies, ACA International. Any firm you hire should be a member. In addition, I always make sure the collection agency is licensed to collect in the states where the non-paying person lives.

In the third instance you may want to hire a collection law firm. This approach is most appropriate if the unpaid balances are relatively high and you have some belief that the non-payer has the ability to pay, but not the willingness. Law firms, through the use of the court system, can compel payment in ways that collection agencies cannot.

The downside to collection attorneys, however, is that they require greater up-front payment and often take longer than collection agencies to compel payment. You generally want to be confident that the payment actually will be made at the end of a long and potentially expensive legal battle.

How do you find a collection law firm? At Cedarcrest we frequently turn to the Wright-Holmes Law list, which allows you to find a local attorney by searching any zipcode in the country. There are numerous other online law lists like Wright Holmes but I’ve found the owner very helpful to Cedarcrest in the past.

You're a business owner, you're a long-term planner and you'd like to have a succession plan that benefits you and the people who've helped you build the business.

If that's the case, then the you'd probably like to:

- Have your business continue beyond your own career.
- Sell your stock to the company's employees in a tax-free exchange.
- Balance compensation to your employees between salaries, profit-sharing and company stock, with the stock being tax-deffered for the buyer and the seller
- Have the employees act like owners instead of employees and drive the value of the business even higher.

An ESOP can help you achieve these goals. Many books and articles are available on this subject. So I'll keep this article short and simply hope that it stirred your interest in starting an ESOP to the extent that you'll research it further.

Related sidebar: 80% of America's workforce are employed by businesses with less than 100 employees. The future of our social security system is suspect. Wouldn't it be great if more citizens actually owned part of the business they work for? Think of the advantages for everyone involved

Businesses succeed, businesses fail.

A company worth $16 Billion in January 2008 like Bear Stearns can disappear in March 2008 for 1.5% of that amount. So there is not necessarily shame in business failure.

For the small business owner, however, some planning should go into the “what ifs” of business failure.

At Cedarcrest we often work with companies that did not work out, and the common denominator is excessive debt.

As a frequent creditor in these situations, I can’t advocate not paying your debts. But, if you have to choose between who to pay, I would recommend paying your banker over your suppliers.

The simple reason is that your suppliers will likely do more business with you in the future, but your banker will cut you off and ensure, through credit reporting, that no other bank will treat you well in the future. Once a bank is burned, it has the ability, unlike most of your suppliers, of sharing that information with every other mainstream lender in the country.

But wait, it gets worse: If you have borrowed money from a bank, the bank typically made you sign - in fine print - a personal guaranty of the debt. That means that if your business goes under, the bank can still hold you personally liable for the debt. That may eventually mean personal collections, a lien on your home, or wage garnishment.

Few suppliers, by contrast, will try to collect money from you after your business is closed. You are not likely to be contractually personally liable for your accounts payable to suppliers.

Finally, we see too many small business owners who, in a last-gasp effort to keep their business solvent, borrow to the maximum on their bank lines of credit and credit cards. The thought is to raise as much fast cash as possible, and hope it works out. All I can say is, that is rarely a good idea. Blind hope is not a strategy. And that unpaid bank debt can be painful.