"If you find that a customer is trying to 'stretch' you on payment, you need to decide what action to take," says Dave Rosenblatt, a counselor with the U.S. Small Business Administration's SCORE (Senior Corps Of Retired Executives) (Wilmington, Delaware).

The first step is to discover why the customer is paying slow. You'll usually come across one of two types of debtor:

Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

1. Chronic slow pay. If the customer is a chronic slow-pay, there's no need to take emergency action. However, you may want to talk to the customer about becoming more timely with payments. "In some cases, you'll want to cut the customer off," Rosenblatt says.

   Some people think that having a slow-paying customer is better than having no customer at all. But consider this:

   • The cost of money. Is this customer worth the "interest-free loan" you're extending by letting it pay slowly?

   • The cost of collection. When you add up the cost of time, postage, phone calls, etc., you may conclude that these expenses are greater than your profit margin with the customer.

2. Temporary slow pay: If the customer has been paying on time in the past, but is now paying slowly, you have to make a choice:

   • Simply wait to talk to the customer and monitor the account closely.

   • Take swift action to collect.

You should base this decision on several factors:

• How long has the customer been doing business with you?

• How important (large) is the account?

• How long will the problem last?

"If it's a good, long-term customer who is experiencing a short-term problem, you will probably want to carry the account for 30 to 60 days until it gets back on its feet," suggests Rosenblatt.

On the other hand, if it's a new customer who isn't established as reliable or important, you'll probably want to take more aggressive measures to collect.

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.