Bizstartup.ie - Start Up Kit

In terms of getting paid, alarm bells should start going off if contacts become unavailable, credit transfers are delayed and there are unaccepted cheques. Excuses are, of course, another thing to watch, as well as people offering you partial payment.

Keeping your cash-flow cycle running smoothly

Your customer’s situation may be temporary, but how do you prevent their short-term problem becoming your long-term one?

Pick up the phone and call them, meet with them and discuss a resolution – only then can you access your options. People pay more quickly if they know and like you. Check the most current financials on them; check for judgments against them; and, if possible, find out to whom else they owe money. This way you can make an informed decision before taking action.

Types of action  

• Put the account on hold, consider cash on delivery until it’s cleared
• Invoice immediately after the product or service is delivered
• Send seven-day demand letter and issue a current statement
• Use internal relationship (your sales department) to contact customer
• Send final-demand letter and state action to be taken
• Follow through on what it is you say.

Internal procedures

Now is definitely the time to prevent future bad debts. Tighten your credit procedures. You can’t guard against unforeseen events, but you can minimise your company’s chance of loss by maintaining rigid adherence to your collection policies.

• Try to discourage extended payment terms
• Pursue partial payments with requests for the balance due
• Shorten your credit terms, for example, from 60 to 45 days
• Offer early payment discount incentive, ie a percentage discount if payment is made within 10 days.
• Call your customer before the due date of payment – confirm invoices are passed for payment, and there is no problem meeting the due date.

No matter how comprehensive your credit policies are your customer may still choose to ignore your in-house attempts to collect the overdue account. If this happens, your best chance of collecting is either through a collection agency or by turning the matter over to your solicitor.

This is an extract from an article that first appeared in Owner Manager magazine.