Cash is king. There are no two ways about it.
In the current climate, when economic and political uncertainty are weighing heavily on the minds of business owners, it is more imperative than ever that your business has robust debt collection procedures in place to ensure a smooth flow of cash.
After all, if you have supplied goods or services in accordance with your obligations, you deserve to be paid in accordance with your customer’s obligations.
You will have your own creditors to pay and you need to manage your own liabilities.
New research carried out by Legal & General revealed that an increasing number of businesses are turning to borrowing to get by.
Alarmingly, 19% of business owners had taken out personal loans in order to prop up their business.
The research also revealed that 67% of business owners feared closure should a ‘critical event’ hit their business.
That critical event could quite easily be a significant bad debt and could be the difference between a business surviving and being forced to cease trading.
Here, we offer some of our top tips for an effective debt collection process:-
1. Agree payment terms upfront
A signed contract at the outset will go a long way to defusing any arguments further down the line over invoiced amounts and payment terms. If you agree payment terms with your customers before invoicing, they will have far less room for manoeuvre and will be more likely to pay on time and in full.
2. Invoice on time
It is surprising how many businesses adopt the “I’ll do it on Monday” approach. If you invoice customers on the last day of the month, make sure you do just that. Yes, there will be other significant demands on your time but the fact is that the faster you invoice the sooner you will be paid.
3. Invoice the right person
This might sound obvious but many businesses get this wrong. If your customer contact isn’t responsible for accounts payable, there is no point sending your invoice to them or relying on them for forward it on for you. You do not want your invoice sat in an in-tray for days or weeks without being processed. It also helps to build up a productive relationship with the right person as this will ensure that your invoices get paid a lot faster. Pick up the telephone and get to know the person – do not rely on e-mail all of the time.
4. Paperless invoicing
If possible, send your invoices electronically. They are received in seconds and you can obtain proof of delivery and read receipts. Not only will this save you the cost of the stationery (which could be significant if you issue a lot of invoices per month), paperless invoicing will also avoid your invoice getting “lost in the post”.
5. Offer a discount for early payment
If getting paid 95% of your invoice within 7 days is better for your business than 100% within 30 (or up to 90 or more in certain industries!), you could offer a discount for fast payment.
6. Follow up immediately if payment terms are missed
Inevitably, there will be customers who will not pay on time despite your best efforts. A few telephone calls, re-sending the invoice and a few days’ grace would be prudent as you do not want to ruin any trading relationships that you have built up. In the unfortunate event that a customer simply refuses to pay, as a last resort you might have to consider formal recovery action by speaking with your solicitor or a licenced insolvency practitioner, but hopefully the above tips will help to ensure that such situations are rare.
About the author: John Rimmer of BRI Business Recovery and Insolvency provides independent advice to companies and individuals in financial difficulty.
John helps to identify the options available to those in trouble and explain the implications of each option. John is a business recovery and insolvency specialist, a qualified accountant and licenced insolvency practitioner. For further details including a no obligation, confidential and free discussion, please visit his website at www.briuk.co.uk.