Fact: Nearly 80% of small businesses fail due to poor cash flow.
When a company provides a product or service, it has a right to expect to be paid on a timely basis. However, anyone who’s been in business knows that prompt payment is not always the case. Often, accounts get seriously past due, or when payments are made, there may be insufficient funds in the customer’s account to cover a check. Accounts not paid within terms can have a dramatically negative impact on the “cash flow” of a business.
Improve your reporting process by monitoring the key performance indicators (KPIs) for your organization. A perfect way to clearly understand your finances is to generate a outflow/cashflow chart from your accounting software. To regulate the cash flow one must try to regulate the cash on hand for three to four months of expenses.
1. Have a Defined Credit Collection Policy
One of the major causes of overdue receivables is that the business has not explained to its customers and staff when accounts are to be paid. If customers are not educated that their accounts are to be paid on time, then chances are they’ll pay late or sometimes, not at all. Make sure that your company’s terms of payment are clearly stated in writing to each customer.
2. Invoice Promptly and Send Statements Regularly
If you don’t have a systematic invoicing and billing system, get one. Many times the customer hasn’t paid simply because they haven’t been billed or reminded to pay in a timely manner. This situation usually occurs in smaller or newer businesses, where they may be short-handed on staff needed for timely invoicing and billing.
(STEP 1: 1st Party REMINDER service, done in your name, can help with this!)
3. Use USPS – “Address Service Requested”
One of the most difficult collection problems is tracking down a customer who has “skipped”. All businesses should be aware of a special service that the US Postal Service offers. Any statement or correspondence sent out from a business or professional office should have the words “Address Service Requested” printed or stamped on the envelope, just below your return address in the top left corner. If a statement or invoice is sent to a customer who has moved without informing you of their new address, and the words “Address Service Requested” appear on the envelope, the Post Office will research this information and return the envelope to you on a yellow sticker that gives the new address or other updated information. If the customer has placed a “forwarding order,” we suggest that you check with your local Post Office to see what additional options you may have for follow-up. This will help you keep your address files up to date.
4. Contact Overdue Accounts More Frequently
There is no law that says that you may only contact a customer once a month. The old adage “The squeaky wheel gets the grease” has a great deal of merit when it comes to collecting past due accounts. It’s an excellent idea to contact late payers every 10-14 days. Doing so will enable you to diplomatically remind the customer of your terms of payment.
5. Use Your Aging Summary Report, Not your Feelings
Many well-meaning business owners (or staff members) have let an account age beyond the point of ever being collected because of the “feeling” that the customer would pay eventually. While there are isolated cases of unusual situations, the truth is that if you aren’t being paid, someone else is. Stick to your systematic follow-up plan. You’ll soon identify who really intends to pay and who doesn’t. You can then take appropriate actions.
6. Make Sure Your Staff is Well-Trained
Even “experienced” staff members can sometimes become jaded when dealing with past-due customers. This usually happens when debtors have broken promises for payment that have been made previously. Make sure the staff is firm, yet courteous when dealing with them. Your entire staff could benefit from customer service training because, in effect, they must “sell” your customers on the idea that you expect to be paid. Make sure that your collection staff is trained to both, bring the account to current status, while also maintaining “good will” with the client base.
7. Admit any Mistakes on Your Part and correct them ASAP
Sometimes customers don’t pay because they feel that you’ve made a mistake. If you have, quickly admit it and correct it. Your customer realizes that mistakes can happen in business. Unfortunately, many customers believe that the owner or president “doesn’t need the money.” Denying an obvious error only fans the fire of resentment that your customer may already feel.
8. Follow all Federal and State Collection Laws
In many states, businesses are governed by the same collection laws that regulate collection agencies. For example, calling customers at an odd hour or disclosing to a third party that the debtor owes you money, are just a couple of the numerous collection practices that can cause serious repercussions. If you’re not sure, call your state’s department of finance which governs and monitors collection agencies.
9. Use a Third-Party Sooner (Collections Agency)
If you’ve systematically pursued your past due accounts for 60 to 90 days from the due date, (and they still haven’t paid) you’re being delivered a message by your client. More than likely, you’ve requested payment four to six times in the form of phone calls, letters and statements. Statistics show that after 90 days, in-house collection effort loses up to 80% of its effectiveness. That means that the time and financial resources budgeted for collection efforts should be focused within the 1st
60-90 days, when the bulk of your accounts can and should be collected. From that point on, a 3rd party can motivate your client to pay you in ways that you cannot, simply because the demand for payment is coming from someone other than you. Before paying a contingency collection agency, an attorney or using small claims court, why not explore using a fixed flat-fee collection service.
STEP 1 ( 1st Party Reminder Service) & STEP 2 (3rd Party Service) for a Fixed Flat-fee of about $15 per account, regardless of the amount owed, or where the debtor is located in the U.S.!
STEP 3 is a contingency service.
10. Remember that Nobody Collects Every Account
Even by setting up and adhering to a specific collection plan, there will still be a few accounts that will never be collected. By identifying these accounts early, you will save yourself and your company a great deal of time and money. Even though a few may slip by, you’ll find that overall the number of slow pay and nonpaying accounts will greatly diminish, and that’s a victory in itself!
11. Hunt for positive signs:
If a patient/customer calls that he cannot pay the remaining amount in full, take it positively. At least he called himself and has the intention to pay. Negotiate what he can pay today and the remaining amount on a later date. Lesser the amount is past-due, easier it will become to resolve it later. Hanging the phone down, without a proper payment plan will push that account towards default.
12. Charge a Late Fees:
Extending credit to customers is often necessary for Small Businesses, but it has always been a trickier call to impose a late fine or not. Slipping a late fees clause in your credit policy is easier when you are initially signing the agreement with a client because typically no one expects to pay late when the agreement is being signed for the first time. Having a late fee discourages your customer from making late payments. Customers are also likely to clear those bills first where a late fee will be charged. Late fees also covers the cost of that extra effort you make to followup with them and finally, it adds up to your bottom-line. Even if you waive off the late fees as a good-will gesture once or twice (or always), it will actually improve your relationship with them since you did a favor on them.
13. Offer multiple payment methods
Provide an online payment portal because people prefer making payment from the convenience of their home rather than walking all the way to your business location. We believe younger people don’t like to mail a check or give credit card details over the phone fearing misuse. Accept credit card, Paypal, eCheck, FSA or ACH.
14. Provide longer human support hours with shorter wait times:
Let people call you and discuss how and when they can pay. Let them talk to a real person without the need to wait for long hours and clarify any queries that they may have. Offer them flexible payment options, and possibly waive off 10% of the balance if they are ready to pay in full right now.
15. Have bank reference or trade check done
If you are about to make a large sale on credit, then have a bank reference or trade check done. For medium-sized deals, perform credit checks before you extend credit to customers; it is a small investment with significant benefits.
If you need a collection agency to handle your accounts receivable: Contact Us