Just getting paid for the goods and services you provide can cost your business a small fortune. Unpaid accounts, the time and energy spent on chasing up late payments, and the cost of collection agencies and legal bills can be a huge drain on your resources.
Prevention is always better than cure, so if you cannot avoid putting yourself in a position where you are not owed money, at least adopt some of these basic practices to ensure that the amounts owed to you do not become delinquent:
- Make it easy for your debtors to pay you. Make sure you fully understand and comply with the systems and procedures your debtors have in place for processing their creditors. Such things as purchase orders, delivery notes signed by the right people, date of invoice and charge descriptions, supporting documentation, statements and query resolution all play a vital role in unnecessarily delaying payments.
- Your Credit Controller is a key person. Too often this is regarded as a lowly position, often seen as no more important than a filing clerk. Wrong move! This person is responsible for ensuring that the money keeps coming in and thereby supporting CASHFLOW! The job is not particularly pleasant, and a good person is EXCEEDINGLY difficult to find. When you find a GOOD credit controller, look after that person, and pay them top dollar! If you do not already have the best, spend the money, and get the best. The investment yields good returns.
- Allow your invoices to work for you. Do not let your invoicing back up, send them immediately, ensure they are accurate, ensure the dates are correct, give sufficient information on the invoice and send them to the right people.
- Mine your queries from debtors. These queries are vital intelligence to the guardians of the business as they highlight deficiencies in your business whether these be quality or service related, systems deficiencies, or potential fraud. A well-run business should have very few queries. Fewer queries mean you are looking after your existing customers. Do yourself a favour and insist on reviewing ALL queries from debtors.
- Debtor payment patterns are worth watching with a close eye. Often, by watching payment trends you can predict with relative accuracy when a debtor is getting into trouble. When this is the case, pay him a visit. Ascertain the facts and either you will start receiving your money on time once again or you will have the chance to take action to reduce/eliminate your exposure before it is too late.
- Relationships are always vital in business, and a good relationship with the creditor’s clerk who handles your account ranks high on the agenda. Establish a good relationship and have someone on the inside who will always ensure that your account is one of the first that gets paid!
- It is surprising how few businesses outside of retailing are registered as credit card merchants. Do what you must do to become a merchant and offer the facility to customers to pay their account by card (business or private). If you are unable to register, tandem with someone who is registered. The discount fee is worth the ease on your cashflow.
- Statements of account must go out as early as possible after month end. Ensure there are no outstanding queries on the statement and attach copies of all documentation.
- What is it worth to you to be holding the money before you have even supplied the goods or services? The airline industry has perfected this practice, and who is to say you cannot do the same! Holding advance payments from regular customers is easily worth that additional discount you will have to offer.
- Settlement discounts still rank high on the list of incentives to encourage debtors to pay you on time. However, make it worth their while to pay you on time or earlier. Most settlement discounts cater for a 30-day payment. What of a separate structure for 14- and 21-day payments?
- Take deposits to get the payment process underway. Can you incorporate up-front deposits in your business? It is a particularly useful technique to employ when opening an account for a new customer … take a deposit equivalent to the cost of the goods or service you provide and keep it at the requisite level as business with that customer picks up. You can play with your profit, but never with your cost!
- Charge for late payments! However, make sure that allowance is made for such charges in any written agreement you have with a customer.
A sale is not a sale until the money is in the bank!
Remember – internal misjudgements are six times more likely to cause business failure than external factors. The message is clear … keep objective help close at hand at all times, and if you do not have it, get it without delay.
Success in business is all about getting the business fundamentals right and the actions you take!
QUOTATION:
There’s no such word as can’t. (Constance Clayton)
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