Accounts Receivable and Debt Collection Failures
Most small business owners know they have to do something to collect receivables in a timely manner. Even if you don’t know the statistics, personal experience has surely taught you that not everyone pays on time, and those late payments cost you money.
Does this scenario sound familiar?
Business has been pretty good. It’s Friday and payroll is due, you sent the rent a couple of days ago and you’re pretty sure there is no problem but you received two creditor calls this week. You wonder what’s going on? You check the bank balance and it’s not as high as you had expected. You pull an aging and take a look. Hey what’s happening here? You’ve got plenty of receivables but 40% of it is over 60 days and a whopping 24% is over 90! You storm down to your collector’s office toss the aging on her/his desk and ask in total frustration “What’s going on? Have you been calling? What are these people saying to you?
When all your money is in your aging instead of your bank, what do you do? Call a meeting, set some ground rules, and set some goals for getting that money in?? Or Maybe you just sit down and do it yourself…and then?? The money comes you cover payroll and forget all about it until the next cash crunch. Why? Because you have a business to run. Too many things to do, too many things to focus on! Want to guarantee the money is never there when you need it? Try the following 7 tips:
- Don’t call at all. I hear it all the time, “we don’t like to bother our customers.” Have you ever received a call on a late invoice from a vendor? Did you decide to find another vendor because they called? Probably not, it’s a lot more likely that you apologized, made some sort of explanation and wrote the check. It’s business! You need products and services to function profitably, and those products and services have to be paid for. You know it, I know it and your customers know it.
- Wait until you need the money to call. Jumping on the phone the day you are about to overdraft doesn’t work. Running around picking up checks is time consuming, expensive and it makes you look bad. Create a system and use it.
- Only call the customers with large balances. Small balances add up and they are harder to collect than larger balances. Call everyone consistently and persistently.
- Ask your customer why he isn’t paying the bill. This might seem like a good idea on the face of it, after all he may be having cash flow problems that you need to know about. But the reality is it’s a lead in to making excuses. Ask when not why.
- Bully the customer; let him know you’re really ticked! Do I really need to spell this one out? This is a good way to lose good customers that might just need a quick reminder to pay as many of us do.
- Don’t write down what the customer said or when he said it. Better yet scribble it on a piece of paper that you’ll never find again or in the margin or your aging that will be outdated the next time you pick this project up! Write it down, you aren’t going to remember. Ideally you have some kind of contact management system set up on the computer but if not use the old index card system that we used before the advent of the computer age! For an explanation of the index card system see our September computer tips.
- Don’t follow up. If you really want to guarantee failure don’t follow up in a timely manner. When you don’t follow up you basically teach the customer that he/she can lie to you or brush you off and you’ll go away and forget about him. When you do follow up and you remember (are able to read your notes) in detail the conversation you had he/she realizes you’re not that easy to get rid of and their time might be better spent cutting the check than taking your calls, no matter how friendly those calls might be.