For a small business owner, cash is king and with that comes the imperative to collect from clients and customers on time, every time. With rare exceptions, a late customer is a dangerous customer not only because their behavior can leave you short of cash, but also because they may come to rely on your acceptance of these ‘unofficial terms’ if nothing is done to correct the behavior. On the other hand, the last thing you want to do is lose a customer, so what can you do to make collection situations work out without too many bruised egos or accounts put at risk? Here are five strategies worth considering:

Option 1: Extend credit, but charge interest.

We first need to keep in mind that your business is not a bank, it’s a business — that means the best scenario is that customers pay on time, every time. On the other hand, if customers are going to pay you late, you might as well gain a reasonable benefit while also reiterating that on-time payments are best for both parties. One way to do this is to tie late payments to an interest fee that is added on top of the amount due. In some cases, franchise networks have actually set up a company-branded credit card that is automatically applied for when a customer first applies for terms. Regardless, this model doesn’t force customers to pay on-time but it does incentivize them to do so. It also potentially allows you to sell the overdue invoice to a third-party collection agency or factoring firm and recover the cost associated with that shift.

Option 2: Use payment status to control future orders and deliveries.

The next option is to strictly tie payment status to future activity. This one is hard for lots of small business owners because they’re terrified of saying ‘no’, and often customers stop paying in the middle of a project, which means that they’re putting the whole project at risk of the vendor stops work. On the other hand, you’re not a volunteer and you don’t work for free, so keep that in mind. If you use your accounting system to implement these policies and customers get clear and compelling notices and warnings, then a strict ‘stop work’ or ‘no order’ policy should work reasonably well.

Option 3: Implement a range of terms that shift depending upon payment status.

How about taking the best of options one and two and putting them together? In this case, you can set up a range of terms that protect your business on one end, and benefit the customer on the other. For example, perhaps if a customer pays their invoice 10 days or more early they receive a courtesy 50% discount. On the other hand, if a customer pays more than three invoices late over a six month period, their terms are changed and from that point forward they have to put down a 50% deposit before any new jobs are started. This approach gives customers a clear sense that their behavior determines the outcomes, not your personal judgment. That should help make consistency across accounts more achievable.

Option 4: Offer a special payment or repayment plan.

When a customer falls significantly behind in paying their bills, you’re in a bind. Your business, your vendors and your employees rely on those funds. On the other hand, losing the account won’t help things either in some cases — although there are situations where firing a customer is definitely in order, and every business owner needs to be ready and willing to do that when necessary. Short of firing a delinquent account, another key option is to approach them with one or more payment plans. For example, you might forgive them 5% of the overdue amount if they pay you immediately in one check within 10 business days. You could also offer three- and six-month payment or repayment plans to help. Another possibility is to protect yourself by requiring that these payments be direct-charged by your business to a credit card on file, or even better, by ACH transfer directly from their bank account.

Option 5: Open up a discussion about seasonal challenges.

Sometimes, the client is running behind in payments due to seasonal challenges that are not unusual in their world. This is especially true if your customers are other businesses. Some firms receive revenue in very inconsistent cycles (for example, typically a retail business secures 85% of its annual revenue in just two months of the year). In these cases, you might consider approaching the customer and offering them a seasonal payment model that accommodates the natural cycles associated with their business and industry sector.

Regardless of which model you choose to pursue, all of these approaches are designed to give you better control, more proactive opportunities to collect, and a better way to manage payment issues with your customers fairly, consistently and with due consideration of both your needs and those of your customer accounts. Try one or two of these approaches and begin achieving your own collection success while also better understanding and supporting your customers today.

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