All businesses are competing with suppliers for their customer’s money. The business with the best credit control system will get paid first. The groundwork for getting paid on time starts with the beginning of a new customer/client relationship. Every business needs to have a system in place for accessing a potential customer’s credit worthiness, whether it is a policy of requesting credit references, bank references or using publicly available information or credit bureaus.Once you are satisfied with the credit references, the next step is to ensure that there are written terms of business, which should include payment terms, provided to the customer. Do be aware though that for a contract to be legally enforceable it must contain certain elements and it is always wise to seek professional legal advice on this.
We all know that there are different categories of customers when it comes to collecting payment. In these difficult times, we all try our best to be reasonable and fair, particularly where in the past the customer has always been a good payer. The main thing is to ensure that as a business, you limit your potential exposure. The most difficult categories for all business to deal with are firstly, those that can pay some debts, but can’t pay it all and secondly, those that won’t don’t and never pay.
A good cash collection system should be flexible, reliable, secure, adaptable and economical. Most importantly, the system needs to be operated in a firm, but intentional manner. If a customer gives you a date for when payment will be made, if not received, a telephone call should be placed immediately. Information about the customer’s accounts department including their payment processing system should also be obtained as this can avoid delays in the issuing of payments.
When preparing to make a cash collection telephone call, it is important to make sure that you have all relevant information and be prepared with possible responses to the standard excuses such as “the cheques in the post”. You must remain firm and ensure that you finish the call with a definite answer.
Reducing cash collection time can also be helped with the use of electronic invoicing over traditional paper invoices. It can save time (not to mention costs) on the delivery of invoices and statements. Encourage electronic payments, standing orders and direct debits where appropriate. Accepting card payments and discounts for early payment can also encourage early payment.
Unfortunately, where telephone calls and reminders don’t work, things need to be ramped up a bit. Clear concise cash collection letters may ensure that the correct person is aware of the outstanding debt and result in settlement. Applying late interest payments may also speed up the collection. However, you need to decide the time that will be spent on something like this if you are aware that the inevitable result will be legal action.
- Immediate steps that you can now take to improve cash collection include.
- A review of your current terms of business/contracts.
- Ensure that payment terms are clearly stated.
- If a written contract, make sure that there is an agreed reference to what interest will be payable on late payments
- Ensure system in place for monitoring agreed payment terms and unpaid debts
- Enforce the credit control procedures firmly, but vigorously.
Remember, good communication and negotiation skills are absolutely necessary when collecting debts. Keep making the calls, square off any excuses and always make sure that you end each call with a firm commitment and follow up if required. A company needs to make sure that they are always “first in line” to ensure that what cash a customer has comes your way.