It’s 3 a.m. do you know where your car is?  If your late on your payments, your local towing company probably does!

As more and more consumers lose jobs, lose homes and can’t afford food and fuel, more and more lenders are sending out the repo man to repossess cars and other items when they aren’t getting paid.

Before you decide to repossess your products when your customers can’t pay, check the laws in your state to make sure this is a legal option.  In many states you must have certain documentation and follow procedures to legally repossess your products that have not been paid for.

If this is a legal option for you and your business, this can be a way to get some of the cash you need for your business while the economy suffers.

• Print out credit applications and put them at your front desk or by your front door.
• Have every new customer fill one out and sign it.
• Check their credit.
• Decide if they are credit worthy by calling their references. (Take notes!)

 What to do TOMORROW

• Make sure EVERY customer in your database has a signed credit application on file.

• Mail a credit application to any customer that doesn’t have one.

•  Mail a credit application to any customer that hasn’t filled one out in the last year.

 What to do a WEEK later

• Make a note on each account that did not return an updated credit application and revoke their credit until they send or give you the signed application.

Do NOT extend credit to ANYONE who does not fill out an application.

Tightening their lending standards helps them to reduce risks on future loans but not on the loans they have already given.  Some banks are offering enticements such as free online payroll services and easy access to health insurance, both things every small business owner can benefit from.

Money is simply less available right now.  Make sure to look over your credit policy and credit standards and make sure you aren’t extending credit where it isn’t due.  This will only end up costing you money and time in collection efforts.

1. Give out as little credit as possible.
2. If you are going to lend money, think like a banker.
3. Time is of the essence!
4. Make sure you have the facts in front of you BEFORE contacting a past due customer.
5. Be willing to negotiate.
6. If all else fails, hire a collection agency.

Smart business owners are aware that this can save them a lot of money as they watch the uncertainty in the economy grow stronger.  This is not just happening in the United States, Australia and other countries are aware of this and all have their eye on their accounts receivables.

Be sure to evaluate how your credit policy is working for you and your business, make sure you don’t get caught as the economy continues to slip, it is up to you to be aware and make sure you get paid for the work that you do.

There are two easy things you can do to strengthen your policy today. 

1. Make sure every account is up to date on payments, start working on them now if you haven’t been.

2. Make sure you have a signed credit application with up to date contact information on file for every customer.

The first item could take you some time depending on how many past due accounts you have.  If you don’t have that many you will get the best results by calling them, and call the customers that owe you the most money first then work your way down the list.

If you have to many to call and it would take you days, pick out the highest dollar amounts accounts and the oldest past due balances and just call those. Send collection letters to the rest, and include a self addressed envelope for the payment.

If you don’t have time to do any of those things, don’t worry, you can still do something! You can outsource this task to a debt collection agency who will do this for you and mail you a check each month less their commission on what is collected. If they don’t collect anything, you don’t pay anything.

The second item is a bit easier, you can just do a mailing to all customers and send them a new credit application, send a cover letter letting them know you are updating your files.  This way if you have an old one, you can make sure it is current and if you didn’t have one for a customer, now you will.  Be sure to check each customers credit limits and adjust any that you think may need to be adjusted, especially on accounts that have started to become past due.

"Dear Michelle,

An attorney contacted me to collect on a year old past due amount.  I told them
that I would contact the company, to verify the validity. The attorney informed
me that once a firm turns their receivables over to an attorney, by law, I can not
deal with anyone regarding the matter except the attorney.  I live in California.

Sean,

Most companies or creditors will not talk with you once they have placed the account with an agency or an attorney, which is why they placed it with a company to collect for them or the attorney. Normally, if a debtor calls a creditor after they have been contacted by the attorney or an agency the creditor will refer you back to the attorney or agency.  Otherwise the agency or attorney cannot do their job effectively.

Business owners and attorney's, agency owners, and anyone who has to deal with bad debt feels that it the bill got to a point that they had to place it with an attorney, they want the attorney to deal with it, the time for them to deal with the debtor has long passed and they have moved on to other things.

Once you received the first letter from the attorney, (and you can still do this if 30 days have not passed since then) you would ask the attorney for the verification of the debt and they will send it to you. This is required by law. If you do not ask for verification from the attorney within 30 days, the law states that the debt is then considered valid since you did not respond, and can be collected upon in any legal manner necessary.

Good luck! Michelle"

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You should be doing the same with your customers, credit approved and new accounts.  Make sure your accounts are up to date and re-evaluate any credit limits on accounts that might be slower paying right now.

Things will get worse before they get better so this will help you to protect your business and your bottom line.

Example: Debtor: I can’t pay, I don’t have any money

Collector: Are you working?

Debtor: Yes, but I just started a job and don’t get paid for two weeks.

Collector: What day will you get paid?

Debtor: Friday

Collector: Okay, then you can mail a money order for $25 on Saturday.

This example can go so many different ways depending on the debtor’s responses. You have to be positive and get them to agree to make a payment. Once you reiterate what is going to happen, send them a confirmation letter with a payment envelope. Then call them on Friday to remind them about mailing the payment. An example of what you could say could be:

“Hi this is Michelle from KTM Auto, calling to confirm you will be mailing a money order for $25 tomorrow, Saturday. “

Remember, as a debt collector you must do the following:

• Manage the emotional side

• Prepare your pre-call plan

• Make the opening statement

• Ask questions with precision

• Make the transition to the payment arrangement

• Handle Objections - You need to become familiar with common debtor objections. The best way to do this is to make collection calls.

• Closing the call - Your last statement should reiterate everything covered in your call. Repeat all actions that will be taken. Example:

“Okay, on Saturday you will mail a money order for $25 in the envelope I send you today. Then you will send $25 a month every Saturday until May 15th.”

You cannot be to clear and follow up is the key to success. If you don’t follow up on any of the above actions, you are wasting your time and money.

This has been something that has been getting a lot of attention lately, some business owners aren't sure if they have to follow the FDCPA or if that is for third parties (such as collection agencies) and not them as creditors.

The FDCPA broadly defines a debt collector as "any person who uses any instrument of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."

While the FDCPA generally only applies to third party debt collectors, not internal collectors or credit managers for a creditor or business owner, some states (such as California) have similar state consumer protection laws which mirror the FDCPA, and regular original creditors.  So be sure you check your states laws and the laws in the states you are collecting in. 

1.  Invest in your career, take a class or learn something that you can add to your resume and make you a more valuable employer or employee.

2.  Pay down high-interest debt, get rid of anything you can or at least lower the balance!

3.  SAVE - add to your emergency fund!

4.  Invest some of it, in a CD or an IRA.

5.  SPLURGE! Just a little, pay off a big debt and then use a small portion of your rebate to reward yourself or your employees. Recognition goes a long way!

Many business owners, especially NEW business owners, are so eager for a sale that they neglect document or discuss payment. The business does want to offend the new customer by asking for a method of payment. If it is difficult for a customer to obtain credit, they will take their business elsewhere. Lack of proper credit policies is the major reason that businesses have overdue accounts. Small Businesses are infamously guilty of having a week or non-existent collection policy. Some businesses have a policy, but use it inconsistently, which yields less than favorable results. As one of the keys to any successful business, receivables management must be taken into consideration when venturing out as an entrepreneur. Unfortunately this key element is often overlooked as the entrepreneur’s attention is pulled in different directions.

If you obtain as much information as possible from the customer when extending credit makes recovery of the account more likely if it becomes past due. In order to successfully manage debt it is customary to ask potential customers for credit references. In smaller communities it is suggested that you network with fellow companies, thus creating a mutual exchange of information. Most companies are more than willing to share information on past delinquents to help you to learn from their mistakes.

Not exactly what President Bush had in mind.  These “rushed” stimulus checks being sent out when the economy is still reeling from declining house prices, and consumers are under even more financial pressure than they were in January when this stimulus idea was developed is causing the idea to backfire. 

Most consumers will be using this money to buy gas, fuel, food and pay off bills. Nothing that will help stimulate the economy.  In my opinion this is the “idea” from someone who has no idea what is going on in the lower and middle class, otherwise this would have been more thoroughly thought out and a better plan would have been put in place.

Reminds me of when Bush spoke to the nation after 9/11.  “Go on vacation” he said.

I don’t believe many consumers will be using their stimulus check for vacations, and this can work to your advantage if you have customers that owe you money.

Checks have started being directly deposited into consumers bank accounts, find out when your past due customers are getting their checks and ask them to pay you with some or all of that money.

Good luck!

Credit is something that is hard to come by right now and will be harder to come by in the coming months.  

Since you are just starting your business, it doesn’t have any credit built up, which is why your personal credit is used until you can build up credit for your business. 

Some businesses are not considered separate from the owner so the credit is shared, those are sole proprietorships, general partnerships and limited partnerships.  Even though you have a taxpayer ID number for your business, your personal credit and social security number are still used to determine your business creditworthiness. 

Your best strategy is to talk to a few banks, credit unions or invesotrs if you need a business loan and then decide where to apply based on many different factors including the interest rates offered. With lenders tightening their standards because of the state of the economy, make sure you have all your ducks in a row before applying for credit anywhere!

Credit card companies have been receiving criticism on their hidden fees and unfair interest rates and the raising of those rates on borrowers.

How does this affect your business?  

Have you taken steps to change the steps your company takes when it extends credit, or charges late fees or offers discounts?

Be very careful when offering credit and be sure to check each applicants credit with a fine tooth comb. Do not extend credit if you have any doubts, now is the time to tighten up your credit polices in order to protect your business. 

In addition I want to share some exciting news about my new book, it has been entered into three prestigious contests, two of which the 2^nd edition won when it was released!  This is so exciting to me, since it is up for those awards again and another new award.  The awards are the National Best Books 2008 Awards, the 16^th Annual Writer’s Digest Self-Published book award and the New York Book Festival.

I try to provide updated, quality information to my readers and am always so happy when the feedback is good and people find what they need in my books. I love getting emails and letters from people who say that my books helped them to start their own business and how great they are doing!!

I also want to thank everyone here at Know More Media for all their support and for posting about my new book on their blogs!