Any business that doesn’t immediately collect all the money at the time of a sale has entered the realm of extending credit. This entails a risk that the sale amount may never get to the bank account.
Having a reliable collection strategy is integral to maintaining cash flow. Fortunately there are some tips for simplifying the extension of credit and improving likelihood of collection.
The easiest aspect of a credit policy to establish is setting a credit limit amount and a time limit for payment. Disclose this policy up front to your customers. Ask your customers to sign a credit sale disclosure before providing your products or services. This written agreement can be a simple page describing the extension of credit by your company and the payment terms. Plan to not extend payment terms beyond 30 days. The first invoice to a new customer should include a letter outlining the consequences of a missed payment.
Don’t extend credit until you verify a customer’s ability to pay. Conduct a credit check. A professional credit checking company is an important resource, including inexpensive automatic online services. Don’t allow customers to exceed credit limits. When a customer owes the amount of credit limit or is late in making a payment, don’t extend more credit. Never make an exception to this policy. If you do, customers will expect special treatment every time by assuming the rules don’t apply to them.
Next, create a system for issuing invoices promptly and monitoring when payments are received. Let you customer know that your billing is not conducted by some automatic impersonal system. Instead, help you customer understand that there are people involved in the process and they have the job of accounting for outstanding invoices. Phone calls should be make several days after an invoice is sent to obtain your customer’s confirmation of receipt and expectation of payment according to the terms. This phone call reinforces the importance of prompt payment.
When payment is not received on time, use the same technique to call and ask when the customer expects to pay. Avoid any anger when a customer doesn’t pay on time. But don’t wait to call. Your invoice could be misplaced or have been ignored. You want your customer to promptly resolve the situation.
Create a tracking system that alerts you about overdue payments. Consider utilizing software specifically designed to track payments. Consult with your financial advisor for suggestions on establishing the right system for your business.
Offering multiple payment options can improve prompt collection. Expedite collection by offering payment by credit card and debit card. Another method to facilitate faster collection is remote deposit. This is a service offered by most banks that enables small businesses to scan deposit checks at their office and electronically transmit them to the bank. Such systems also enhance the operating efficiency of your customers.
A reliable and efficient collection strategy permits you to allocate more time to other aspects of operating your business and enhances the cash flow required for success.