Collect Every Penny You’re Owed

Howard Scott |

CHICAGO — Drycleaning is usually a cash business. But if you offer commercial or retail accounts, you’re also in the collections business. By my estimate, about half of all operators do some of this non-cash volume, on account.
On a recent plant visit, I got an earful about problems collecting money in a depressed economy. “My accounts are such pains,” the operator said. “They just don’t pay until you threaten to cut them off.
“They have all sorts of explanations for their tardiness,” he continued. “They blame the economy, their own customers’ delinquency, a slowdown in the public sector. If I had a dollar for every excuse, I’d be a millionaire. Instead, I’m carrying more than $100,000 in debt myself, and have to write off $1,500 in bad debts every year.”
Well, that’s not the way it has to be. I know this for a fact—not as a consultant, but as a businessman who sets every customer up on credit. I have a side venture selling books; I’ve been doing it for 10 years, and more than $100,000 has passed through my portals. I average 30 days on collections, and have never lost one cent of revenue.
Furthermore, the average order is $30, and my customers—small independent bookstores, gift shops and museums—are all over the country. How do I collect money without a fuss, and how can you? Here’s how:DO THE JOB YOURSELF
Only the owner (whose money is at stake) combines the intensity and the diplomacy necessary to persuade customers to pay without alienating them. Only the owner realizes the consequences of uncollected revenue: loss of income and wasted effort. Only he feels the pain of unpaid accounts when he can’t pay the bills.MAKE COLLECTION A REGULAR PART OF THE DAY
Look over your accounts; see who’s overdue. When the date passes, call. Be reasonable but firm. The money is due; the balance must be paid. “We need the money to pay our bills,” you will say. The person on the other end knows this, but it might strike a nerve.
Make sure you talk to the right person. If you can’t get to the person who pays the bills, his or her assistant will do. Finally, make a note of the communication: “Called, 7/2/10,” “Promised to pay in a week, 8/14/10” and so on, until the payment is received.FOLLOW UP
In two weeks, make the call again. Be a little firmer each time. “We can’t continue to extend your  credit if you can’t fulfill your obligations,” you might say—something just short of a threat. It puts the company on notice. Wait another week to follow up again, and continue every week until the bill is paid.
Be polite but firm, raising your level of insistence each time. “You said you would pay the bill, but we haven’t received payment,” you’ll say. “Why not?” You can say this whether or not they agreed to pay, just to put the ball in their court and force the person to come up with an explanation.
If you must, leave voicemail messages. Do so in the same polite-but-firm tone. At this point, the idea is to make such a nuisance of yourself (while still being civil) that they throw up their hands and give you what you want—payment in full.
Occasionally, a compromise is appropriate. Make a deal: You will accept 70% now in order to wipe out the obligation. Perhaps the person could pay off the obligation in kind, working off a small debt in your store. Or you might suggest to the wholesale customer whom you think is on the verge of going out of business that he pay you in supplies. Compromise at least allows the discussion to continue.NEVER GIVE UP
There will come a time when an account is cut off with money outstanding. Don’t write letters or e-mails—letters are easily tossed in the wastebasket and e-mails are easily deleted. Don’t turn the account over to a collections agency, because they have no more power to make people pay than you do. Plus, you will lose 30% of the money as their fee.
Instead, ratchet up your insistence. Be less polite. There are harassment laws that tell what you can and cannot do to collect money, but these are deadbeats. You might call a retail customer at 10:00 p.m. to discuss terms, or call them at work. Or call a business account at home at 7:30 a.m. to remind them of their obligation. That not-so-subtle pressure will demonstrate that the issue is not going to go away.
Threatening legal action is generally ineffective because the wheels of justice move so slowly. If the individual is savvy, he will ignore legal machinations until the last minute, then pay the bill. He has gained a year’s credit with no penalty, and might have worn you out in the process.
If the debt is the right size, it might be prudent to take the case to small-claims court as a last resort. Depending on the state, it costs $30 to $60 to file a claim. If the defendant shows up, you stand a good chance of winning the case. But then it becomes a matter of collecting. A savvy debtor could force you to take him back to court several times. Exhaust your other options before relying on the court system.
Make your collection efforts count. You can collect 100% of your money without alienating your customers.

About the author

Howard Scott

Industry Writer and Drycleaning Consultant

Howard Scott is a former business owner, longtime industry writer and drycleaning consultant. He welcomes questions and comments and can be reached by writing Howard Scott, Dancing Hill, Pembroke, MA 02359; by calling 781-293-9027; or via e-mail at [email protected].


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