Doing business with slow-paying customers is a common but dangerous practice that can devastate your cash flow. Many business owners continue serving customers who consistently pay late, often due to personal relationships, long-standing business connections, or fear of losing sales. However, this practice can put your entire business at risk.

Consider a real case: A client had $150,000 in receivables over 90 days past due out of a $250,000 total receivable balance. These were longtime customers who had always paid slowly, but their payment times were getting even longer. The solution was decisive action: putting these accounts into collection and requiring COD for future orders. While some customers were lost, many returned under the new terms, and overall cash flow improved dramatically.

The key to managing customer payments is having a systematic, consistent approach to collections. For typical net-30 terms, contact customers between days 35-40 if payment hasn't arrived. For customers with a history of paying within 30-40 days, you might wait until days 40-50. If customers don't respond or provide unsatisfactory answers, send a 10-day demand letter warning of collection action.

When using collection agencies, choose ones with legal staff who can take immediate legal action if needed. Look for agencies that charge no more than one-third of collected amounts. The key is consistency and timeliness in following up on late payments.

Establish clear criteria for when a customer is considered "slow-paying" and develop policies for handling such accounts. While these policies might vary by industry, they should be consistently applied. Remember, it's better to lose a customer than to lose your business due to cash flow problems caused by slow payments.