Sometimes, the biggest challenge for a small business owner comes when it's time to get paid. Fortunately, with a little preparation, you can minimize late payments and develop the business radar that lets you know when an account is headed for collections. By communicating effectively and working with financially troubled clients as they make their way through a rough patch, you may end up with devoted customers for life.

Late-paying customers usually fall into three categories:

• Customers who want to pay but, because of real financial problems, can't do it on time.
• Customers who prefer to delay or juggle payments.
• Customers who will do whatever possible to avoid any payment.

For the first two categories, there is hope. You may be able to manage these debts and convince the debtors to make partial or full payment. As for the last category, you need to recognize this type as quickly as possible and take serious action -- perhaps turning the account over to a collections agency, discussed below.

Whatever collections efforts you make, one rule always applies: Get busy as soon as possible and stay on the account until you're paid. Send bills promptly and re-bill monthly. There's no need to wait for the end of the month. Send past due notices promptly once an account is overdue. For more information on sending notices and collecting debts, see Running a Side Business: How to Create a Second Income, by Richard Stim and Lisa Guerin (Nolo).

Here are some more tips:

• Don't harass. Don't harass people who owe you money, but let them know that you follow these matters closely. Don't leave more than one phone message per day for a debtor, and never leave messages that threaten the debtor or contain statements that put the debtor in a bad light.
• Be direct, listen, and don't get personal. Keep your calls short and be specific. Your goal, according to collections expert Carol Frischer, should be to prevent the debtor from taking the call personally -- that is, from associating the failure to pay as meaning a failure in life. Always stay calm but always maintain a sense of urgency about getting paid.
• Get creative. If the customer has genuine financial problems, ask what amount they can realistically afford to pay. Consider extending the time for payment if the customer agrees in writing to a new payment schedule. Call the day before the next scheduled payment is due to be sure the customer plans to respect the agreement.
• Write demand letters. Along with phone calls, send a series of letters that escalate in intensity. Save copies of all correspondence with the customer and keep notes of all telephone conversations. You may need these if you hand the matter over to a collections agency or take the customer to court.
• Use a collections agency to send letters. You can pay a collection agency a fixed fee to write a series of letters on your behalf. This is different than turning over the debt to an agency. For example, Dun & Bradstreet Small Business Solutions (http://smallbusiness.dnb.com) will write a series of three letters for under $30. They will also make telephone collection calls on your behalf. Other companies such as Transworld Systems (www.transworldsystems.com) and I.C. System (www.icsystem.com) offer similar services.
• Offer a one-time deep discount. If an account is fairly large and remains unpaid for an extended period (say six months) and you're doubtful about ever collecting on the debt, consider offering in writing a time-limited, deep discount to resolve the matter. You can finalize this with a mutual release and settlement, a legal document that terminates the debt.
• Learn from the pros. Debt collectors can offer helpful tips. You can learn some by reading either Collections Made Easy, by Carol Frischer (Career Press), or Paid in Full, by Timothy R. Paulsen (Ragnar), both of which are friendly, succinct, and helpful.
• Turn the account over to a collection agency. Turning a debt over to collections is your last resort. A collection agency will usually pay you 50% of what it recovers. Of course, in some cases, half is better than nothing. Dun and Bradstreet Small Business Solutions, and the similar business services Transworld Systems and I.C. System, all offer debt collection services. The Commercial Collection Agency Association (www.ccascollect.com) provides more information on debt collection agencies.