The first time you do business with a client there's always a big element of trust involved. They are trusting that you will deliver on your promises and you are trusting that they will pay you.

Now, trust is nice but knowldege is even nicer. Spend some time to check out your new clients before you extend them credit. Ask questions, solicit supplier references, and do a credit check if necessary.

Not long ago, we had a meeting with a potential client. In the course of our conversation, it became apparent that he had a huge payables problem. It was also apparent that reducing these payables was not a priority for this client. Rather than simply take on the client and join the growing list of payables, we asked for a substantial deposit. When that did not materialize, we chose to return the file instead of taking a chance.

If you have serious doubts about the client's ability to pay, you have several options:

1) Refuse to take them on as a client.
2) Require full payment, in cash, before the work begins.
3) Require a deposit upfront, and continue with milestone payments throughout the project.

If you choose this last option, be sure to monitor the invoices carefully. If the client falls behind, refuse to do more work until the payments are caught up.

By researching your clients ahead of time, paying attention to your intuition, then choosing your payment terms accordingly, you can minimize your bad debts.

To help get your payables and receivables in order or to keep them that way, visit: http://www.theprofitline.com

Fern Gordon is a Partner in The Profit Line Inc, a company that specializes in small business bookkeeping and financial management. For more information, check out http://www.theprofitline.com

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