Believe it or not, if you have slow paying customers that are behind 60, 90, 120 days or more in funds they owe your business, you are their bank. This is a serious issue that can cause huge cash flow issues for your business — and could ultimately put you out of business.
This is not about good intentions, this is about small business survivability. Your small business. It can’t survive without cash flow. And cash flow means money moving into and out of the business.
If you have a big clog — unpaid invoices — stopping the cash from flowing in your business, it’s way past time to solve the problem. Here’s what the George S. May International Company offers to bring discipline to your credit department:
- Establish credit reports with customers and track credit history: Assign points for key line items on a credit application. Point totals will eventually equate to the customers creditworthiness.
- Act on infractions immediately: Review reports regularly, and this means daily. If customers are behind on a payment it is time to give them a call.
- Follow a documented and carefully scripted collection procedure: Avoid future accusations and problems by clearly noting invoices, as well as payment/credit dates and times. Keep one copy for the company, and send another to the customer.
- Institute and promote a discount program for early payments: Reward customers with something meaningful, cash back. And if structured properly, the program can pay for itself.
- Train collection callers: The collection caller is not a customer service representative. Keep these calls concise, firm and always polite. If a customer cannot make a payment, evaluate the situation based on an established credit history.
Have you been caught in the trap of acting as a bank for your customers? Tell me how you solved it by leaving a comment.