Along with slowing sales, many small businesses are encountering difficulty collecting on money that is owed to their business. A recent Intuit Payroll Survey of over 1000 small businesses indicated about 50% are having this problem. Is your business one of them?
It’s hard to keep your cash flow on an even keel when people won’t pay you for the work you’ve done. To have good cash flow in your business, it’s important to have good credit and collection policies. What percent of your accounts receivable are currently overdue? If you have a lot of outstanding receivables, it’s time to take a hard look at what action you can take to minimize your risk. Here are some steps you can take to make sure you get what you deserve.
Have a Credit Policy and Procedure Manual
Your credit procedure will define how you implement offering credit to your customers. Credit procedures should include who will get credit, how much credit you will extend and when it’s necessary to get a credit report for the customer.
Your credit policy will define what steps you will take to collect money when the customer has not paid. This should detail when the customer will be contacted, how they will be contacted and what steps to take at what intervals to get the highest return from the customer.
There are a lot of issues you need to consider depending on what type of business you own. You can find a good checklist of questions at the CoveringCredit.com website.
A good credit policy and procedures won’t do you any good if your contract negotiation and accounts receivable processes are a mess. Here are some things to consider.
If you must issue invoices to collect your fees, make sure you get them out the door as soon as the work is done.
Wen you negotiate a contract to complete work, set it up so you get paid by deliverable. That way you have cash coming in the door periodically rather than waiting until the project is done.
If you provide a service where you can place the deliverable in a transition state before final delivery to the client, do it. Give them an opportunity to give the project a final okay followed by payment before you release the product.
Provide an incentive for your customers to pay their bills. If you normally require payment within 30 days, offer a small percentage off (5% to 10%) if they make the payment in 15 days.
Give your customers options for paying you. Offer check, credit card, PayPal, money order, and cash (yes!). The more options you offer, the less excuses people have for paying.
Your business can’t survive if you don’t have enough money coming in to pay your bills. Having to spend time chasing down money can be a huge expense you just can’t afford. Taking the time to put the proper credit policies and procedures in place to ensure you get what you deserve will save you a lot of time and hassle in the long run.
The above article was previously published at OPEN Forum and is republished here with permission.