Say goodbye to slow payers
February 27, 2009 11:29 am Finance, Management StrategiesAsk any business owner to nominate the most frustrating thing about running their business and cashflow quickly comes up in the conversation. Running any business successfully entails maintaining a positive cashflow. Even in the most buoyant economy, let alone one that’s floundering, cashflow can be a challenge. Considering the poor current financial climate we asked debt collection expert MICHAEL TODD to share his tips on creating positive cashflow.
Collecting overdue accounts can be a major issue for small to medium businesses but the impacts of not staying on top of debtors can be devastating. As a small business operator you are under no obligation to extend credit. After all, payment is expected at the time when an airline flight or a hotel room is booked and if any small business chooses they can do likewise. There is no need in the current economic climate to be exposed to the risk of bad debts. But if you are extending credit and chasing slow payers you will find these tips very helpful.
Start everything early – This is the first of three fundamental principles behind all successful account management systems. Businesses should set out a clear credit policy, document exactly what their payment trading terms are and describe how they will follow up any errant accounts. This should be circulated to all staff.
Issue invoices promptly – Customers cannot be expected to pay promptly if invoices are not issued promptly.
Make it easy for customers to pay – Bank details and a specific ‘pay by’ date should be on all invoices. Credit cards should be accepted; they too make it easier for customers to pay.
Chase unpaid accounts weekly – Overdue accounts should be followed up as soon as they are overdue and then reviewed weekly. The prospects of collecting an account diminish greatly as each day passes.
Always be the good guy – Being polite but persistent when chasing late payers is a very simple but effective strategy. Another excellent way to gradually escalate pressure on debtors to pay without the risk of offense is to establish a ‘Collection Hierarchy’. Three levels is the ideal.
- An Information Gatherer, someone to enquire if the payment has ‘already been sent’.
- A Problem Solver, a more senior person who can contact the debtor with a ‘How can I help’ approach, and lastly.
- A Decision Maker – the most senior person who, armed with all of the facts, can decide on the next logical collection action to be taken.
Always blame someone or something else for following up late payments – The debtor can ‘save face’ if he has a common enemy with the creditor. Bank Managers, Head Offices, Computers, Board Meetings, and Policy are excellent candidates.
Assume innocence – The customer cannot be offended with the initial phone approach if this wording is used – “I was doing the accounts today. We don’t appear to have received payment for May yet. Has it been sent or is it on the way?”
Speak the good news, write the bad news – If you have something pleasant to advise the customer, phone them. If it’s unpleasant, write it. Writing is less personal, more formal and more credible.
Become very hard to ignore – This is the third principle. Do not just send out monthly statements and expect to be paid. As a reconciliation item they are invaluable but as a collection tool, they are virtually useless. If statements must be used, a two-column table - ‘Current’ and ‘Overdue’ is far more preferable to a four-column table – ‘Current’ to ‘90+Days’ that advertises generous 90+Day trading terms.
Action overdue accounts weekly – Gradually increase the pressure on the debtor to pay. A gentle reminder letter followed by a firmer one and then phone calls, emails and even SMS messages.
Send a text reminder from a computer – Letters, phone calls and emails can easily be ignored. SMS messages seldom are. There are many computer-to-mobile providers around. SMS Global www.smsglobal.com.au has a user-friendly service where messages only cost 10c each.
Don’t keep phoning – If the caller knows the likely outcome of a phone call they should consider sending a letter instead. The impact on the debtor is greatly weakened in direct proportion to the number of messages left and promises made and broken.
Contributed by: Michael Todd, OPS Global, www.opsgl.com
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