Watch this video and in 90 seconds you’ll have a cool new way to keep track of your customers and stop deadbeats in their tracks.

Score your entire portfolio monthly (at least quarterly) or use a monitoring service to watch every day

With customers deteriorating quickly and long-term consistent payers suddenly degrading, you cannot afford to not score your accounts regularly. The pricing and effort required to do this is no longer the barrier it once was in the past. Every new customer and any request for a change in credit line should be thoroughly vetted.

Publish your newly scored portfolio results to upper management & sales

With risk on the rise the entire company needs better visibility into the financial health of the customer base. Involving sales early in the process to qualify targets or before an account gets to far past due can help avoid internal conflicts, the potential loss of a customer, and future risk of default.

Derive credit line & collections decisions based a wider variety of information—not just internal payment experience

Payment risk scores based on a wide variety of contributing partners can help provide a complete picture. Are you being paid better or worse than the average? Couple this with other pertinent information such as tax liens, judgments, bankruptcy and important news for clues into warning signs that may impact a customer’s ability to pay.

1. Call AP: Cooler heads prevail, so be professional and calm. Instead of calling into your primary contact, call the main office line and ask for Accounts Payable. Usually a simple inquiry can determine if your invoice has been approved for payment and submitted. If they have no record you’ll need to go back to your primary contact. If they do have a record of it, ask when the check will be processed. Some companies have long payment cycles, so you might be stuck in a holding pattern, but at least you’ll know that you will eventually be paid for your services.
2. Follow-up regularly: If your invoice has not made it to Accounts Payable call your primary contact again and ask specifically who you should talk to about getting your invoice approved for payment. Follow-up with the same message in email to document your conversation or voicemail. Be firm, factual and reference any legal agreement you have in place that specifies your payment schedule. It is worth asking if there is any problem with your work. Set a reminder in your calendar to call back/email in two days. Try also calling during off hours (early in the morning or after 5:00 pm) or even their mobile phone if they travel for business often.
3. Send a letter from your attorney: If your client is no longer responding and it has been months since you expected payment, you will need to be more forceful and send a letter demanding payment or face legal action. There could be still be a reasonable explanation, but the likelihood of future business is unlikely so you should focus on simply getting paid. A letter from your attorney addressed to your primary contact, the senior-most person in that department and the attorney for your client will get their attention.
4. Tell the world: In today’s connected world, there are more and more places to express any dissatisfaction with a business. Tell the Better Business Bureau, websites like Yelp and Cortera allow you to post online reviews about your experience. Businesses monitor their reputation online carefully so a few negative ratings across the major websites might just get their attention and you eventually paid.
5. Take them to court: As a last resort you can take them to small claims court. Most small claims courts allow you to represent yourself in court. Small claims court is also very informal making it accessible to anyone.

1. Lawsuits are a matter of public record. Before agreeing to provide services, you can check your local courts to see if your potential client has been sued by a fellow freelancer or other vendor. Many jurisdictions make their court dockets available online.
2. Conduct a background check on your potential client. Entry level business credit reports can be purchased online with a credit card from bureaus like Cortera and others. These reports outline the business’ payment history and help predict future payment behavior.
3. Check the various websites that rate local businesses like Yelp, Google Local and Yahoo Local. Look for negative reviews and ratings as a potential warning sign. A simple Google search can also reveal quite a bit about a business.
4. Ask your peers on social networking websites like Facebook, LinkedIn and Cortera (shameless plug for Cortera Circles – but hey it’s a free and all about sharing payment experience on businesses so worth a look!)
5. Don’t perform any services without first getting a written contract in place with your client. Among other things, the contract should spell out, with particularity, the services you have been retained to perform, the amount you will be paid, when you will be paid. For artists, designers, or other technical and creative freelancers, you should ensure that the contract protects your intellectual property rights. A small investment in legal services could save you down the road.There are even free contract templates that can be downloaded from the Resource Center of elance.com.

If you follow all of these precautions and still don’t get paid, you can sue your client. Most small claims courts allow you to represent yourself in court. Small claims court is also very informal making it accessible to anyone. And don’t be shy about using the above websites to share your experience with others – your rating could save another fellow freelancer.

I’m not a lawyer so here is the standard warning: The recommendations set forth herein are not a substitute for legal advice. You should speak to an attorney licensed in your jurisdiction if you wish to obtain legal advice about these matters.

Have another tip? Drop me a comment.

“I think there should be a website where independent contractors can rate how well or how poorly a company pays. Big companies decide how credit-worthy another company is by going to look at a Dun and Bradstreet report. But what about you as the person who’s working on your own, serving at the pleasure of this non-employer, and they stiff you? We need this for those working as freelancers. That’s how capitalism works. A need is met in the marketplace and your reward for it is money – a real paycheck!!”

Clark is spot on in identifying this need. Freelancers, unfortunately, too often get the short end of the stick when it comes to payment. It’s time we bond together and change that. It relates directly to our company’s mission.

Cortera has built the first true online community where small businesses, freelancers and anyone can check in real time who’s getting paid and who’s getting delayed, or worse yet, stiffed. They can even report the deadbeats to protect the entire community. Check it out http://www.cortera.com/community/. Best of all, it’s free to join.

It’s time that the “little guy” in business has a say and gets heard.

Obviously in this economy, as I have reported in the past, there continues to be a large and growing group of companies well beyond their terms. Collectors are turning to the Exchange to report their deadbeats and notify the debtor that they have been publicly reported online. It seems simple, but in a world where everyone is online and reputations are everything, this technique could be just the approach that will get your money in the door. Here is a sample of some of the more colorful ones we’ve seen over the last few weeks:

• “Pays a fraction of balance. Watch this company they must bounce from provider to provider.”
• “This company does not pay subcontractors on commercial projects. They have numerous lien and foreclosure actions in the state of Colorado.”
• “Still working with Owner to settle this account. I am hopeful since we started at $70,000 and are down to $13,500.00. Will not do business with them again.”
• “The A/P dept and Office Mgr. refuse to talk to me or return emails and Voice mails. The owner/Pres. also refuses to reply to emails and voice mail.”
• “Sitting in a receivership right now. These clowns do not pay anyone promptly. Have successfully fought off a mechanics lien against the company in July 09. Currently 91 days past due, and an active litigation, every single payment has required collections activity to get paid.”

Have a few deadbeats in your customer portfolio? Report them here – it will feel good (trust me).

Troubling Statement #1: “Never Pay Your Vendors On Time”

This is an unfortunate headline in an advice column. Instead of focusing on the true problem (“…but payment on outgoing invoices isn’t getting collected for months. One large organic foods chain owes six figures on an order it placed six months ago”) of the invoices that they are owed to this small business, Mr. Cloutier is focusing on spreading cash flow problems to other businesses. Shouldn’t they work with their customers to speed payment and/or perhaps consider putting these customers on cash only plans until the payment pattern improves? The true issue here is a collections problem. There is definitely a cash crunch for many small businesses, and I feel their pain, but this is not the way to solve their problems—ultimately it will only make things worse.

Troubling Statement #2: “Wendy is balking at the idea because she is under the false impression that paying on time will help her maintain a good credit rating. She also wants to keep her good relationship with vendors. But this has nothing to do with her credit score.”

This is totally incorrect. Wendy is right to challenge Mr. Cloutier because her instinct is right on the mark. If you slow or stop your payments to your suppliers it will most definitely impact your business credit rating. Payment behavior is how these scores are generated at all of the major bureaus. That fact is, suppliers will cut you off and will put you on cash terms if you drag your payments too far out.

Troubling Statement #3: “Same goes for your landlord. Pay him late, too. He’ll scream his mortgage is due, but that’s not your problem. He won’t evict you because he needs the rental income, especially in these times. Send him a check at the end of the month, not the beginning. He’ll soon get used to it.”

Again, bad advice. If you start paying all of your core bills late, this is a major signal that you are struggling and close to failing. Trade credit for small businesses is especially hard to earn and establish. If you slow payments across the board this could be extremely damaging in the long run. The pass-the-buck tone by Mr. Cloutier is just appalling. If every company in America started doing this, the whole US economy would grind to halt.

George Cloutier’s Advice: “Over the years, my turnaround firm has found millions of dollars in extra cash for companies by delaying payments this way. In good times and bad, it’s simply good business practice to stretch out payables…All the big retail chains do it, so why shouldn’t you?”

He is right. Big companies do use their market weight to force unreasonable terms on their suppliers, but is this really the message that we want to send? Let’s tell every business owner in the country to just ignore the terms of their invoice and pay late. While we are at it, let’s just stop paying our mortgages and credit card bills, too. The banks are hurting. I’m sure they’ll understand.

The fact is there is a huge difference between a big company and small company when it comes to credit and credit evaluation. Many business credit reports on big companies do in fact reflect poor payment behavior. But when it comes to credit analysis, a large public company benefits from public financials, large bank credit lines, public debt and public ratings that ultimately prove their credit worthiness. A small business does not have this luxury – they will be judged on their payment history, their trade references and other public records. If you stop paying your suppliers in timely manner, your credit report and trade references suffer, and you may find that your well earned trade credit has dried up. Keep up the pattern and you may even end up with a lien or two filed by a supplier.

Small businesses have enough to worry about and getting bad advice from a supposed expert, shouldn’t be contributing to their worries.

What do you think? Does his column bug you as much as it does me?

“This guy is part of the problem we have with our economy. Wendy and Ted need to stick to their business ethics and demand others do the same. If I slow pay my suppliers, they stop selling to me and send me down the street to the higher priced vendor to slow pay them. If you want good prices, you have to pay your bills.”

“Yeah no wonder the country is in a s#@t storm.”

“This is the worst business advice I have ever read. Period. You want to know the number one problem our business has in this recession? Getting paid in a timely basis for work performed. Want to know why? Because of fine, upstanding people like “Wendy and Ted” who don’t pay their bills on time. I honestly can’t believe Business Week considers this to be great advice.”

“I really couldn’t believe what I was reading…Pay promptly is the best way..and I agree with all the ones who have written opposing the practice of delaying payment..I have been in business a long time …if start off doing it right ..it will work..I disagree with delaying payment unless it is absolutely necessary.”

“Congratulations on writing a column that illustrates one of the many reasons this country is going down the toilet.”

“I agree with everyone else here. This is an atrocious way to conduct business. This will eventually lead to mass layoffs of people. I pay all my bills on time. And if my customers don’t pay in time then I cut them off credit as well. No wonder the banks have cut so many businesses off of credit.”

There is certainly some passion there. As I have blogged about in the past, there is a rough “dual credit crunch” that is squeezing small businesses and hurting their cash flow.

What do you think? Is slowing payments as form of a short-term loan a valid technique? Or is it one of the primary reasons that we are still in a recession?

Having access to the A/R activities of millions of businesses provides us with a unique view into the nation’s cash flow. And since the beginning of the year, we’ve been seeing a steadily improving trend in the amount of corporate accounts receivable debt that is current (see chart 1 below). In fact the vast majority of debt tends to be current – most companies simply pay their bills on time. Even at its worst in February of this year, on a national basis 81% of debt was current. Today that number stands at approximately 83%.

However, companies still must deal with the other 17% of businesses that fail to pay on time. While this number is not dramatically out of line, we’re seeing unsettling growth in the amount of debt over 90 days past due (see chart 2 below). This is not surprising given the well reported growth in amount accounts sent to collections agencies since the recession started, but it is causing finance staff and business owners to be more diligent and get more creative when it comes to dealing with a deadbeat drag.

Have you seen your 90+ days aging bucket growing? Please share a story or two on how you are dealing with this growing problem.

Chart 1: Percent of Current Commercial Account Receivable (US National Average)

Chart 2: Percent of Over 90 Days Past Due (US National Average)

The analysis by REL Consultancy, a division of the Hackett Group showed that “Companies with more than $5 billion in annual revenue took an average 55.8 days to pay suppliers and trade creditors in the second quarter, up 5% from 53.2 days a year earlier, according to REL. They also collected faster on their bills, taking an average 41 days versus 41.9 days a year earlier. Businesses with less than $500 million in sales paid vendors in an average 40.1 days, down 6.5% from 42.9 days, REL found. They took roughly 8% longer to collect payments, or an average 58.9 days, versus 54.4 days a year earlier.”

Has this practice started to impact your business? Are you getting squeezed by your biggest partners? Seeing shortened cash cycles? Have best practice tips for dealing with such practices? We’d love to hear from you.