Best Studio Practice: Dealing with Delinquent Accounts

You've taught the classes, run the rehearsals and survived those long competition days. Now it's time to collect the cash for your hard-earned work! It'd be great if everyone paid in full and on time, but for most studios, there are always some stragglers. And unfortunately, bad checks are common, and suing to collect on one may involve more expense than the check is actually worth. There are several alternatives, however, for reducing the hassle and expenses.

1. First, try to eliminate or reduce the number of checks your studio accepts by encouraging more debit or credit transactions, which allow for an immediate transfer of funds. Having a debit/credit card machine and offering the option of paying online will encourage your customers to pay via credit or debit card instead of using checks.

2. Second, larger studios or those that still have a substantial number of check transactions should consider using a check-guarantee service such as TeleCheck (www.telecheck.com). The service guarantees payment on any checks verified through its system and pays the studio the face amount of the check, even if they are later returned.

3. A third alternative is to take advantage of the bad check statue available in many states. For example, under Missouri's bad check statue, statutory damages are up to three times the face amount of the check. Check with your local prosecuting attorney's office or from your state's Attorney General's office.

4. It's also a good idea to have a policy in place for returned checks, including a service charge and future payment terms (e.g., cash only, credit card backup required, etc.). Include this policy in all registration and sign-up materials.

When a check has been returned, your first step should be to call the customer or send a letter asking them to make the payment via another method for the face amount of the check plus the service charge. On first contact, it's important to proceed with courtesy for your customers. If you get no response, a second choice is to turn the bad check over to the local prosecuting attorney for collection. However, because of the large number of bad checks and the many other demands on a prosecutor's time, many collection attempts are limited to sending a letter or postcard demanding replacement of the check. The bottom line is, improving your studio's ability to collect payment for services you've provided leads to a better bottom line and business practices.

Parts of this originally from "Money Matters" by Tarra Morris.

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