Get your money!
Three steps to make sure your clients pay up - even in this lousy market
(Money Magazine) -- It's a tough economy, and that spells bad news for small business owners who are trying to get paid.
"You may find some of your customers playing the check-is-in-the-mail game," predicts Eric Siegel, professor of entrepreneurial management at the University of Pennsylvania's Wharton School.
Nobody likes prying money from people, but you've gotta do what you've gotta do to get your due. This strategy can help.
A well-organized billing system will alert you when a client is falling behind in payments, so you can act quickly to recoup before the problem gets worse.
The key: a tracking method that lets you connect outgoing invoices with incoming funds (or lack thereof).
Terri Lonier, founder of New Paltz, N.Y. consulting firm Working Solo, suggests assigning invoice numbers and categorizing jobs by the year and month you finished them.
For example, your first invoice this month might be labeled 2008-12-001. Make TO BE PAID and PAID folders, and move an invoice into the latter as soon as the check arrives.
If you don't want to manage invoicing yourself, sign up at blinksale.com, which will help you create and catalogue bills ($0 to $49 a month, depending on how many you send). Or get Intuit's QuickBooks or Microsoft Office's Accounting Express 2008 ($199 each), which do this and other bookkeeping jobs.
Whatever process you use, though, get those bills out ASAP. "The sooner you invoice, the sooner you get your money," says Newport Beach, Calif. certified public accountant Raffaele Mari. As an incentive, he adds, you may want to offer discounts to customers who pay quickly.
Every 30 days, at least, follow up on unpaid invoices. Be empathetic, initially, especially when you're dealing with valued clients.
"It can be as simple as saying, 'Hey, I noticed you were late. How can we help you make payment?' " says Ira Davidson, director of Pace University's Small Business Development Center. Should the customer confess that he's having trouble making a single large payment, try to work out an installment plan.
If you think the client will pay eventually but you really need the cash now, consider going to a factoring company, says Mari. This type of firm buys unpaid invoices, usually at a 1% to 5% fee, and gives you the cash up front.
When the client is able to pay the bill, he may directly pay the factoring company - the new owner of the invoice. (Find a business that does this at factorscan.com.) Another option: See if your bank provides loans against accounts receivable (a.k.a. unpaid bills).
If the empathetic approach doesn't work, you have two choices: small-claims court or a collection agency. The decision comes down to time vs. money.
Because of the fees involved, you'll get less cash with collections but you'll get your money faster. The small-claims process - from serving an adversary to collecting a judgment - may take months.
Depending on the state, a business can recover $3,000 to $5,000 a case in small claims court. Filing costs are around $40, and you don't need a lawyer. In fact, you aren't even allowed to bring one to court.
If the court finds in your favor, you'll be entitled to garnish the client's wages or bank account to get your money. (For filing info, go to the National Center for State Courts' site at ncsconline.org; search Small Claims State Links.)
With a collection agency, you turn over the bill and the firm tracks down the money. But you'll pay a third to half of the balance due.
Look for an agency with expertise in your field, as well as insurance to protect against debtor lawsuits, says Jay Gonsalves, president of industry group ACA International. Find options at acainternational.org.
Need help with your business? Submit your questions to the editors of Fortune Small Business, Money Magazine's sister publication, and to other small business owners at cnnmoney.com/askfsb. 
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