self employed

As a small operator with lean margins, you’ll need a sound collection system. Begin by learning some collections law by visiting such web sites as nolo.com, abanet.org, or www.law.cornell.edu. A qualified attorney might also coach you, and prepare such important documents as contracts and collection letters.

Collection Letters 

Letters are the least abrupt way to handle collections. They also establish a useful “paper trail,” should you end up in court. You should send at least three notices before taking your claim to court, each spaced about one month apart. An initial letter should accompany your invoice, and it should briefly explain the reason for the bill.

A gentle reminder should be sent within 30 days after payment is due. Overdue bills might be due to errors or forgetfulness. So don’t panic yet!

A second notice should be sent 30 days later. You might turn up the volume a notch with an emphasis on this “Second Reminder.” But remain patient and pleasant. At this stage, diplomacy still pays.

Your third notice — 30 days later — brings you to a critical point. Something’s wrong, and you need to get to the bottom of it. While maintaining your civility, you also need to stress your continuing awareness of the delinquency and inform the reader that payment must be made by a specific date.

On the Phone 

At this point, you’ll need to add the phone to your arsenal. Letters are the right way to start, but they’re also passive, and easy for receivers to ignore. The best way to demonstrate your earnestness and to expedite matters is to directly call the customer and discuss the matter. Find out the reason for the delay, and settle for nothing short of specifics. Vague answers and double-talk are signals that you need to be more aggressive about getting definite commitments. Be firm and business-like, and be very specific about your expectations. Collection calls are always unpleasant for debtors and will often get action from customers willing to settle.

Always be polite and keep your cool on the phone — no matter what the other person says. If the matter goes to court, you want to be squeaky clean. Sharp verbal confrontations, moreover, accomplish nothing but to make people more stubborn. Also, because it is easy to step across the harassment line, you should probably make no more than two phone calls.

Notices could also be sent by e-mail. But these will probably be less effective since e-mails are so easy to overlook or “bleep out.” You also have to be careful about “spamming” complaints.

Final Steps 

Since previous letters and calls have failed, your final written notice is critical. Now it’s time for concrete terms. If you’ve made an arrangement, remind the debtor of those details. That will provide you with some useful evidence, should you go to court. If you’ve decided on further steps, spell it out in the letter. Be aware that if you threaten court action, however, you must follow through. You don’t want to be accused of harassment or look like a paper tiger.

Finally, time for action! This might be a letter from a collection agency or attorney. It’s amazing how effective third-party collectors can be. Just the sight of a letter from an attorney will encourage lots of debtors to settle. The last step is court!

Under no circumstances should you write anything defamatory in your letters. Should a third party see it — and that could include the debtor’s spouse or secretary — you could be open to a liable action!

You can find sample collection letters at various web sites, such as at http://www.uschamber.com/sb/business/tools/letter_m.asp. You can also find services that will dispatch letters for you, such as collectionletters.com.

For software options, also survey the Internet. There are plenty. Intuit’s Quicken Home & Business 2007 at Quicken.com, for example, offers various money management tools, including cash flow tracking and customized invoices. The product retails for $79.99. HBM

Christopher J. Bachler is a 20+-year veteran business writer and editor, based in Drexel Hill, PA.