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.