Why Cash is King in Small Business

For start-up owners, most are in the position (of having their own business) not because they love financing or accounting, but for other, more personal reasons (wanting to be their own boss). So, when it comes to actually collecting on a debt, many small business owners may not be exercising the iron hand when it comes to sending out an invoice or having a customer pay on time.

So, the trick is how to get paid with limited resources (meaning you don't necessarily have a full-time person dealing with accounting and other details). The question first is to decide if you want your business to succeed or ultimately fail. If you don't get paid, you're business won't last too long or it won't be able to grow.

One of the keys to collecting on a debt is to set your business up for the customer that may not pay. This means creating a policy on payments from the start - before you even start getting customers. This should be a policy created as part of your business plan and then modified as you stay in business and learn from the habits of customers and your own mistakes.

In addition, having a policy saves you from a customer turning around and using it against you if you don't have one. Remember, while you may be an idealist believing in the best of people, some people don't exactly fit into that mold - and a business usually tends to weed out those people from a crowd and set them just outside your business doorstep.

To further protect yourself, is to always remember that everything should be in writing. Your resources may be low as a small business owner, but don't get sloppy. All agreements should be made in writing. Don't think that just because someone is nice or "seems" a certain way, that is automatically a reflection of who they are and whether or not they will pay on time.

Onecle.com is an interesting resource to look into. It's a web site that shows you examples of all sorts of business agreements from different states. It could be a great starting point for you if you're not sure how to draft an agreement.

Just because you don't have a formal background in accounting or finance, it's not an excuse to slack off on that end of the business. You need to inform and educate yourself on that end of being an entrepreneur if you want to succeed and compete with competitors. Remember, for every facet you run short in or don't know as much about, there is someone else in the business world that can do it better. So, strive to be better.

In some business owners' policies, they do background checks on their potential customers (this is obviously not for businesses selling retail, but for wholesalers) or they ask for references to verify that a person will make good on their debts or have the money to pay for a debt in the first place.

Another way to make sure someone pays, is to require a deposit. Obviously, the amount is up to you, but you should study what other vendors in your industry are charging.

Think about any time where you have had to make a large purchase, you've had to put down a deposit. When you have a credit card, you are required to make monthly payments. These are all ways for the creditor to make sure that the debt will be paid off in a timely manner.

The trick to everything in debt collections is to remember that you're in charge. A lot of small business owners forget that because they want to keep a client or they are just so busy with everything else, they don't have the time to follow up with debt collecting.

Just remember, you need to make the time. If your business doesn't get paid, you don't get paid.