It’s a frustrating yet all too common problem. Your graphic design firm does work for a customer, and as agreed, you send an invoice to them upon completion of the job, requiring them to pay you within thirty days. Thirty-five days later, you still haven’t received payment.

For small and emerging businesses cash flow is critical, and the failure of clients to pay on time or at all can ruin a business’ financial solubility. You can avoid collection problems and speed up the collections cycle by having a collections plan.

Of course, one way to avoid the problem is to request an advance payment or a services retainer. Some businesses require payment deposits during various stages of a project.

If you (and your customers) don’t feel comfortable asking for a deposit up front, you could develop a product or service incentive structure to encourage on-time payment. Some companies offer customers one to two percent discounts on bills paid on time, or provide value-added services to timely payers.

Often customers will claim that bills are misplaced or lost, resulting in non-payment of a bill. One way of preventing that problem (and the excuse that goes with it!) is to provide your invoices electronically. Not only will it efficiently provide the invoice to your customers, but it will also help streamline your collections process.

Another recommendation? Try instituting late payment penalties. If you do so, proceed with caution to avoid a customer relations nightmare. Late payment fees should be discussed with your customers up front to avoid confusion. You will also want to exercise flexibility on this policy by reducing or removing penalties for clients who attempt to immediately resolve outstanding balances.

Sometimes a customer won’t be able to pay the entire fee up front. If the customer is valuable to you and your business, it may be worth it to set up a payment plan. A valued, long-term customer shouldn’t be lost because of a temporary cash flow problem.

But if none of the above options solve your collections crisis, you may have to resort to working out a collections plan.

If the payment is five to ten days late, call the customer to find out why he or she isn’t paying their bills. Use this call to improve relationships with your customers and clear up any miscommunication. If the payment is 15 days past due, send out a duplicate of the invoice to once again remind the customer of their obligation. At 30 days past due, call the customer again to check on the status of the payment, and call again at 60 days past due if the matter hasn’t been resolved. If at 90 days past due the customer has not made arrangement for payment, it’s time to refer the matter to a collection agency.

Collection agencies should be your last resort however, because they negatively impact your customer-business relationship, and can be costly to hire. Most agencies work on contingency. Some agencies buy your outstanding receivables for a fraction of what you are owed. Others work for a percentage of the fee. Others work on a retainer basis.

By putting a collections plan in place, and letting your customers know the consequences for late payment, you help stop collection problems before they start.

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