As a small business owner, you have to do all you can to protect your business from the unwanted costs and hassles of late and unpaid bills. But odds are, your business may someday have to deal with uncollected debt. In a recent study of small businesses, almost 50 percent of users of a popular small business accounting software package reported losses each year to uncollected accounts receivable. In addition, these same accounting software users wrote off an estimated $1.3 billion in 2000 because of bad debts.

While some small businesses are profitable enough to sustain these significant losses from bad debt, many are not. According to a study by the Small Business Administration, 19 percent of small businesses that file for bankruptcy cite "disputes with a particular creditor" as one of the reasons for filing for bankruptcy.

What should you do to avoid these collections problems in the first place? The first step is to be prepared: Manage your billing and invoicing processes in a solid small business accounting package (such as QuickBooks Pro or Peachtree) and monitor the credit health of your top customers.

Start by taking a close look at your billing and invoicing toolkit. If you have an older, paper-based billing system, it might be time to finally take advantage of what accounting software packages, the Internet, and new credit database technologies have to offer in regards to your billing and credit management.

Here are 5 tips that may improve your billing and collections process.

1. E-mail and mail your invoices. The process is very straightforward and should be used whenever possible. No stamps, no envelopes, no waiting in line at the post office. Most importantly, online billing helps you get bills out faster, so you can paid faster. You may also want to drop a paper copy of the invoice in the mail to your customers, so they are sure to know what they owe.
2. Look for more ways for your customers to pay. Besides accepting checks and cash, consider offering other payment options, such as credit card payments to your customers. You need to make payment an easy step in your customer's buying process.
3. Use payment reminders. Whether a short note or a quick e-mail, friendly payment reminders are a cost-effective way to stay on the radar of those who owe you money. Don't expect customers to police themselves. Instead, make sure to properly send statements and reminders of past due invoices.
4. Purchase credit reports. If your invoice amounts to any particular company are more than you are prepared to lose, then you may want to consider buying a credit report. These reports can be extremely helpful if you don't know much about the customer/company or its financial record. And as mentioned earlier, credit reports are an inexpensive way to verify the creditworthiness of your customers.
5. Monitor the credit rating of your top accounts. Stay on top of the credit health of your most important customers. D&B offers business credit reports starting at $20 per company. D&B sells a range of credit reports, from a simple report that provides a quick overview to a more detailed report that offers in-depth information and credit monitoring.

Here's one more little scare tactic that works well with medium to small business clients:

Let them know you use outside credit agencies. If you use D&B, you have the ability to report favorable and unfavorable payment experiences to D&B, as well as the option to use the D&B name on your invoices informing customers that you share their payment history.