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Collecting money owed to your company is awkward, uncomfortable and an unproductive use of business resources. As a result, it's something that's often put on the back burner. That's not good for your business or for your peace of mind.
Outstanding receivables and the collection efforts required to reduce those receivables, cost businesses money and time, and negatively impacts cash flow, margins and the company's bottom line.
The key is to put in place a process that de-personalizes collection efforts while maximizing your ability to be paid on past due accounts.
Take the Pain Out Of Collections
Establish and provide customers written terms. Bills of sale, contracts, invoices – any agreements should clearly specify credit and payment terms extended to customers.
Spell out not only when you expect to be paid, but also what happens if you aren't paid on time. Consequences could include penalties, interest charges, suspension of services and formal collection proceedings. In short, make sure customers know and understand your company's policies and expectations.
Establish progress payment terms. Keep track of work performed, goods and services rendered and invoice clients on a pre-established schedule. If necessary, withhold additional services until the client is current on payments. This is especially important for long-term projects or engagements.
Contact slow-paying customers immediately. Don't wait – some won't make payment arrangements until you actually contact them.
Be flexible, especially with established B2B customers. Almost every business occasionally struggles with cash flow. If you've developed a long-term relationship based on trust, find ways to work with the customer while they overcome short-term cash flow issues.
Before you do, decide ahead of time how long you're willing to wait and how much you're willing to bend. Let the customer know exactly what you are and are not willing to do. Clear expectations limit misunderstandings and disagreements.
Bring in the experts. In some cases, you may have to enlist a collection agency. Agencies typically are paid:
Using a collection agency does cut into company margins, but receiving some payment is always better than receiving no payment at all.
When working with a collection agency, always set a specific time period for the agency to perform. That way, if one collection agency is unsuccessful, you can hire another one, or take over the collection process in house.
If you use a collection agency, make sure to shop around and compare both prices and services. Some agents use aggressive, even confrontational, tactics to collect debt. These techniques reflect on your business. Ask for samples of letters collection agencies send out, and ask for a description of the agency's standard operating procedures.
Sell your accounts receivables. Some companies, called factors, buy up past due collectables for a percentage of the total due. Your company receives payment immediately, saves on collection costs and keeps focus on growing the business rather than collecting past due accounts.
Collecting on overdue invoices is unpleasant, but when you set clear expectations and communicate on a regular basis, collecting your due is a lot easier.
Don't let your cash flow dry up simply because your customers are slow to pay. Remember, cash is king – it's the life blood of small business.
Keep your business alive by keeping up with past due accounts.