Friday, November 19, 2010

Home Business Collections

Nothing is harder to do in a home business than to try to collect on a bad debt. Odds are, if provide work for someone and they default on the payment, you will have to borrow quickly, using a merchant loan or credit card, to cover the gap in income. In addition, if you have subcontracted some of the work, you will still be responsible for paying the subcontractors, even if your client has defaulted on their payment. That's why home businesses need to have even more stringent guidelines for collections than regular businesses, as their profit margins may not be as large as big companies and one bad debt can really hurt the business. Here are a few strategies to get payment, if not all, at least partial.

Collect Upfront

For new customers, you can ask them to pay a percentage of the amount due at specific times in the delivery cycle. For instance, they pay 30% upfront, with another 30% midway through the project, and the remainder at the end. This way, if they default before the end of the end of the project, you won't have delivered work that isn't going to be compensated.

Third-Party Collector

Another way to be more certain you will get paid is to go through a third party that holds the funds in escrow until your project is delivered, then releases the funds. Some freelancing boards will also guarantee payment in some fashion, and offer themselves as the third party to collect funds so that they also can get a commission from the sale.

Credit Insurance

If you've got a large client who doesn't want to offer much upfront and you don't want to do third party collections, you can always get credit insurance on the account. This will cost you more, but if the buyer defaults then at least the insurer will pay you.

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