The work is done and your customer has been invoiced, so the sale is complete. Right? Wrong!
Your sales aren’t complete until you’ve been paid.
As many people have found over the last few years, receivables collection has become more difficult and this has caused a lot of problems for companies’ cash flow. Although it’s not always possible to ensure that everyone will pay you on time, for most companies it is possible to collect receivables faster and turn them into cash.
Before we discuss how to collect from your customers, we need to start with a fundamental principle: Don’t give credit to people who don’t deserve it.
Many businesses make three mistakes in this regard. First, they fail to check credit references before granting terms. Second, after credit has been extended, they fail to periodically update their information (a company’s creditworthiness can change, especially in a troubled economy). Third, they allow customers to exceed their credit limits and just keep filling orders.
Assuming your customers are creditworthy, the following are ways you can speed up the process of collecting those receivables.
Notify them immediately when they’re past-due. Many companies wait weeks — and maybe months — before contacting a customer whose payment is late. If you do this on a regular basis, you train your customers that your bill is not really past-due until you contact them.
This means if you wait until they’re 30 or more days past-due, they believe their terms are really 60 days. Most accounting software has a function allowing you to track when someone is late and send them a notice. Get in the habit of sending past-due notices as soon as possible.
Become the squeaky wheel. In many companies, whichever vendor squeaks the loudest (i.e., contacts them the most), is the one that gets paid. In fact, many companies will pay everyone else late and pay the “squeaky” vendor faster, just because they don’t want to get that phone call.
Don’t be timid about asking for your money — it’s your money. Get commitments. If a customer is behind and tells you they will pay you soon, get them to commit to a specific date. This tells them you’re serious about getting paid and gives them a timeframe for making the payment. It also lets them know that if they don’t pay by that date, you’ll be contacting them again.
Have clear rules. What will you do if someone is 15, 30 or 45 days past-due? Setting clear rules for handling past-due accounts make it easier to deal with those situations because you and your employees know ahead of time what to do. If a customer is 30 days past-due, the rule could be to cut off their terms until someone in your company has talked to them or (better yet) you’ve received a payment.
Provide incentives for paying on time. These can be positive, as in offering a discount for early payment, or negative, as in charging late fees. You can also incentivize your sales staff by tying commission percentages to how soon payments are made. They’ll be more likely to be very clear about your credit policy when closing a sale if they know that the sooner you get paid the more money they’ll make.
Don’t always be Mr. Nice Guy. If you’re always willing to bend your rules and never put your customers on a credit-hold, you’re sending the message that you’re not really serious about collecting your money. Of course, there are situations where you may want to help a customer who has fallen on hard times and needs to work out different arrangements. But if they simply don’t like paying their bills, you need to be tough.
Go visit the customer. If you’re still having trouble collecting, make a site visit. Surprising them by showing up unexpectedly will let them know you’re serious and just might get you paid. It will also give you an opportunity to talk about your terms or, if they’re in a difficult situation how you might be able to make other arrangements with them.
Once you’ve done all the hard work to provide the product or service to the customer, you deserve to get paid. Remember that every dollar you lose from non-payment doesn’t come out of sales — it comes out of your bottom-line profit. Collecting your money is the last step of any sale and equally as important as all the rest.
Laddie and Judy Blaskowski are partners in several businesses, including BusinessTruths Consulting. They are authors of The Step Dynamic: A Powerful Strategy for Successfully Growing Your Business. Judy@BusinessTruths.com.