Some customers will use you as a bank if they can. Better to use your goods and/or services and not pay until they have to. Here are some suggestions to speed up payment.
The Quick & Easy way to See Who Owes What
Once you have sent out invoices, which really should have your terms of trade highlighted on them, it doesn’t automatically follow that customers will do the ‘right thing’ and pay on time.
You need to be able to easily monitor what is owed to you, by whom and for how long. A very simple report that you can get from most accounting systems, lists all the customers who owe you money, how much they owe, with columns for how long they have owed the money.
This gives you a very quick and easy way to see where you should be concentrating your collection efforts. The more often you can look at such a report, the better your cash position will be, if you use this report as a basis for collection.
Statements/Reminders – Why Every Week if Necessary!
Your terms, don’t guarantee you will get paid on time. You need to let customers know you are serious about getting paid. The best way to do this is to send out regular statements. Statements not only remind customers it’s time to pay, but let them know you are ‘on top’ of the situation.
If slow payers get the impression you aren’t organized about collection, some will take advantage of the situation. Put yourself in a their shoes or the shoes of their Accounts Payable person.
They get all kinds of invoices coming via mail and email. Which ones are they going to pay first? Those who seem disorganized with shoddy practices or those who appear professional and serious about collection.
All good accounting software has the ability to produce statements. You can be sure though that the suppliers who remind customers about payment are going to get paid ahead of those who don’t.
It’s interesting how many business owners write off perfectly recoverable debts. For some reason they feel it’s not worth the effort to employ a debt collection/recovery agency to collect the payment for them. If you have exhausted all efforts to get paid by a customer, find a good debt collection agency.
At this stage you may not want to do any more business with the customer, so getting tough should not be a problem. Any good debt collection agency though, should perform their task without you having to lose a customer. Good agencies understand the importance of maintaining good customer relations.
So don’t hesitate to employ a debt collection agency, as you should have the right to charge your customers the costs, if you have included this in your ‘Terms of Trade’.
A Small Investment in Debt Management …
Is worth the effort every time. All of the above will happen if one person is allocated the responsibility for Debt Management. They may not have to perform all of the tasks, but if one person is responsible to oversee the process … it’s more likely to get done properly.
It may seem like a large expense but the cost of not managing debt collection can be very high, in terms of lost working capital and accumulating bad debts.