I’ve been writing about the importance of Small Balance Collections for years but still many if not most people don’t agree with me. Virtually everyone that I talk to wants to “focus on the big balances.” On the face of it, that makes sense. After all, the time it takes to collect a small balance is much the same as the time it takes to collect a large balance but the rewards of the latter are greater than the rewards of the former, right? Allow me to make my case.
Let’s Define Terms
What is a small balance? Well, like most everything else, it depends, primarily on the size of your average balance. If you’re running jobs for $10’s or $100’s of thousands of dollars a couple thousand dollars may seem insignificant, whereas if your average balance is $1000, $100 means something.
Whatever the number is for you, humor me for just a moment and imagine this scenario.
You are the vendor and your customer calls with the following request:
Customer: Hello, Mr. Vendor, I need to order 2 XYZ Widgets, and I’ve got to have them right away to finish up my project, do you have them in stock? Yes, that’s great, can I drop by and pick them up? I’m in a bind here. Yes, fantastic. Now one last thing, I know that widget costs you about $15 to produce and you charge $45 for it, but that’s such a small balance, how about you just give it to me?
Maybe you’re a contractor and your customer calls with a $2000 change order on a $75,000 job with the same request? It’s less than 3% of the total? Or maybe the job is $750,000, now do you want to give him $2000?
Perhaps you’re a consultant or an attorney charging $275 an hour and all they’re asking for is a free 10 min consultation? It’s only $46??
In which of these scenarios do you say yes to the free services? My bet is 0. Why does that change after the fact? Are your margins wide enough to give your product and services to your customers?
We Focus on Small Balance Collections Because
- They add up, and contribute to bottom line profitability.
- It’s a poor precedent and sets up unhealthy (for your bottom line) expectations. Especially with customers who also place larger orders.
Let your customer know you’re on top of your game and that you know and care when they owe you money.
I’m not suggesting you spend the same time and effort on your small balance collections as you do on your large balances, I am suggesting you don’t ignore them and that you have a system in place for dealing with them.
Want or need help setting up a Small Balance Collections System? Or just want someone to do it for you? Call us at 800-201-2274 my extension is 110.