Written by James Herst, Performance Source, Inc., reprinted with permission by The Financial Management Network.
Sellers can avoid bad debt losses through better handling of their receivables. Here’s some suggestions.
Customer Records a Key
Create and maintain accurate customer records, including full name of customer’s bank. Know names of those who approve payment, signs check and the superior of each at customer location. Call a new customer and tell your credit terms. Ask: Can you live with that? If No, ask customer what terms he wants. If acceptable, accept! It is better to be surely paid in 45 days than to wonder, at forty days why your thirty day terms were ignored. Confirm by letter your agreed payment terms. Consider repeating this entire process yearly, always seeking to impress customers of your carefulness in credit granting.
Slow Pay Strategy
Known slow payers trigger a different approach. On receipt of order, call and indicate your exact credit terms, ask if that’s agreeable. In effect, get an advance commitment of future payment, specific to that situation. Confirm your accomplishment in writing. Then, when order is shipped or five days later, make another call, again reminding a slow pay customer of his prior agreement to your payment expectation. And, the most important call of all is made five days before payment is due. “I hope you are thinking about the money due us next Tuesday. Will there by any problem?” Pause, listen. Be sure that what is agreed at this call clearly understood by you and your customer. Be firm here because you already had an agreement.
No Pay Strategy
Do you have No Pays? You should! If all customers pay within or very near your terms, you’re losing business and profits. However, it will be your critical handling of these No Payers that will enable you to reduce receivable loss to a desired level. The key is early identification of potential no payers, and then to make four or five programmed, orderly contacts. If after these fail, it should be your unflappable decision to utilize an authoritative third party such as a collection agency or an attorney. By placing claims early, complete with correct data, the Third Party will do the job fastest and at least cost. Your advantage? You are freer to work current problems, keeping them from getting out of hand.
The Ultimate Objective
Receivable handling is an art. Your finished painting, your real success, will be when you practice programmed procedures on your canvas of cash flow. It is not a matter of being tough. Instead, it is your ability to portray to your customer your sense of importance to his responsibility and commitment. You obtain that by early communication that builds rapport and implies compliance. Everybody pays some bills always on time. Using just a few brush strokes will cause your customers to sense your receivable, his payable, must be forwarded when due.
You can contact Performance Source Inc., by fax at 847/831-5050, or call Toll Free, 800/883-5080. To contact Jim Herst, call 847/831-5080.