In Peter Bowerman's monthly e-newsletter he talked about an issue facing every business: collecting on unpaid invoices.

One of his readers had offered a suggestion outside the norm of legal action and collection agencies: writing a letter stating that if the invoice wasn't paid promptly he would begin to verbally question the companies financial wherewithal and ability to pay, sharing with others that perhaps the company wasn't going to be around for very long.

The idea was to embarrass the customer into paying their bill.

However another reader pointed out that if they acted upon the threat that it could be seen as libel and if they didn't act upon it, it was merely an empty threat.

About a year ago one of my customers, someone who has also left me with an unpaid invoice, sent an email out to her entire mailing list asking for donations for a charity she was supporting. One of the people who received that email hit "reply to all" and said that she wouldn't contribute until the woman paid her outstanding invoice that was 18 months old.

Oh, cold. I wrote about it at the time saying that although the unpaid balance wasn't right - neither was the person who had exposed her to the entire email list.

But the fact remains that we need to collect on the bad debt. We provided the product or service in good faith and expect payment to be rendered.

I guess one way is to start at the beginning. Collect a deposit up front. In the optical business our product was specially made for each individual. Our policy was to collect 50% up front however some of my franchisees didn't want to do that. "They are good customers and I don't want to offend them," they would say.

My experience, over 10-12 years at the time, was that the percentage someone left in advance represented the odds that they would return to pick up their glasses.

It was true. Think about it. You place an order but aren't required to place a deposit. The next day you see the same item for 20% less. What do you do? Well, some people purchase the item at the second store and never call the first to cancel the order.

I have read that some consultants and writers ask for 50% up front and others ask for payment in three installments. The idea being that at least you are compensated for some of your time, effort and expertise.

However even then someone may choose not to pay the balance. What steps do you take to collect? Do you think through a cost analysis of your time versus the amount owed? At some point it is costing more in your effort to collect an invoice that the buyer never intends to make good - so where do you cut your losses?

I have been blessed with very few unpaid balances over the course of three years, and those that have gone unpaid I have simply sent a series of payment notices. After a period of time if the invoice is still not collected I will place a call. Depending on the response to the call, at that point I have made the decision to write off the amount as bad debt.

What do you do? Do you have a dollar amount limit that you have set - if over this amount, give to a collection agency - if below that amount, write it off?

What steps do you take to collect past due invoices? Share your thoughts here.

Deborah Chaddock Brown
Writer