Collecting unpaid and overdue invoices is a time-consuming and difficult chore that businesses must undertake.

Nobody likes to do it, but the alternative is worse: writing it off as a loss. That’s like throwing away money. And nobody does that on purpose.

There are, however, several steps that can help you make sure that your company’s collection process is efficient and does not become a long, drawn-out, and costly affair.

The key is to not be caught off-guard. A company that is vigilant about getting paid from the beginning will have fewer problems when its services have been completed.

Fool me once, shame on you

1. “Trust, but verify.”

As you begin a business relationship with a customer, you fully expect to be paid for your services. After all, getting paid is what keeps you in business and pays your bills. But as President Ronald Reagan said, “Trust, but verify.”

This doesn’t mean treating a new client like an enemy. You must, however, obtain as much financial information about the client as you can that will prove helpful in the event that you seek to collect.

When is the best time to find out about your customer’s assets? At the beginning of the relationship, when the customer wants to do business with you. Find out where the customer banks and keep copies of checks you receive. You may need to attach that account in the future.

Develop an understanding of the customer’s accounting cycle. When does s/he receive their payments? When do they typically make payments? Knowing this information will help you determine when the account is most likely to have funds, if it must be attached. By keeping a copy of a customer’s check when you do receive a payment, your attorney will know where to freeze a bank account if the need arises later.

Does the customer own any real estate? While this is certainly less liquid than a bank account, attaching real estate is a viable option. This information can be obtained through an innocuous question on a credit application.

If your customer is a privately held corporation and your transactions with it are substantial, you may want to obtain a personal guarantee from one or more of the officers, if possible.

2. Keep current on overdue accounts.

The older an overdue account becomes, the less likely it is that you will be paid. Make sure your entire staff takes this to heart and recognizes the importance of uncollected bills. Ultimately, it’s money out of their pockets.

As busy as your staff may be, make sure that time is set aside each week to compile a list of accounts that are overdue by 30 days or more. Carefully review this list to track your receivables.

3. Get on the phone.

In the early stages of the collections process, nothing is as effective as a telephone call. This is a good opportunity to pinpoint the reasons why you have not been paid.

Was it dissatisfaction with the job? Problems with pricing? Is the customer having a temporary cash-flow problem? Or is the problem more severe?

Don’t accuse or threaten. Instead, listen to what the customer has to say. Express empathy for their situation, but remain firm in that the resolution of the outstanding account is critical.

4. Be flexible, but set guidelines.

If you are satisfied that the debtor is experiencing short-term financial difficulty, work out a payment plan. While this may not be the optimum solution, smaller payments over time are better than no payments at all.

Be sure, however, to set guidelines. The plan should include consecutive payments spaced at no more than monthly intervals and that last no more than six months to a year.

Fool me twice, shame on me

Any future business with this customer should be looked at with a critical eye. If you do work with them again, make sure you demand payment in full at the time of delivery of the service or product.

5. Get it in writing.

Once you have worked out a resolution, don’t waste any time getting it on paper. Draft the agreement, including terms of the payment plan, and fax it to the other party that same day.

Make the agreement as simple and straightforward as possible. You don’t need a lot of “legalese” or other rhetorical flourishes. Make sure that the party signs the agreement and sends you a copy ASAP.

6. Stand firm.

If the customer refuses to agree to a payment plan or reneges on your agreement, it’s time to turn the account over to a collections specialist. You’ve exhausted your good-faith efforts, so don’t waste any more time in the hopes that the customer will come around or that the next promise of payment will be kept.

7. Hire an aggressive law firm.

An overdue bill will rise to the top of the payment pile when a customer receives notice of a lawsuit accompanied by a bank account attachment. And the chances are that if the debtor is not paying your bill, there are most likely other creditors out there who are also seeking payment.

In the event that there are several creditors, not everyone will get paid. That makes it even more important for you to collect as much of your bill as quickly as possible.

Know that collection agencies tout their ability to hound debtors, but in fact they have no legal authority to compel payment. Most agencies simply send computer-generated dunning notices.

Law firms, particularly those that specialize in collections, become valuable allies when it comes to collections because they can file a lawsuit and seek to attach a debtor’s assets.

When a county sheriff serves a debtor with your lawyer’s summons and complaint, you can be sure that it will get significantly more attention than a computerized dunning letter.

If the debt is undisputed and the debtor is viable, you will be paid. Excuses followed by delays are no longer options for the debtor, unless s/he is prepared to spend needless legal fees or is willing to risk default by the court.

Taking a measured approach to collections ultimately benefits both you and your customer. You enter the business relationship with a greater knowledge of the customer.

If problems do occur, you have taken steps in advance to ensure that you collect the money that is owed to you. By trying to work with the client and establishing a payment schedule, you are demonstrating a willingness to be reasonable. And your decision to use a lawyer who is adept at collection practices shows that you are serious about getting paid.

Montminy is a principal in the Montminy Law Firm, Quincy, MA, which specializes in collections. He can be reached at 888-773-3330 or 617-773-3333; (e-mail).