It is now more important than ever that companies make sure they get paid quickly and reduce their exposure to the risk of bad debt.
We have put together some advice on how you can protect your business
and improve cash flow.
Terms and conditions
Make sure you have terms and conditions of sales that are up to date and relevant to your business. This will help you if there is ever a dispute over your goods or service.
Credit risk assessment
Many smaller companies focus on sales and forget to make sure their customer will be around to pay when the invoice is due. Investing in a 'credit check report' helps to reduce your businesses exposure to bad debt.
Disputed invoices
Resolve any customer disputes quickly. This will help you maintain a good working relationship with your customer and keep the money rolling in.
Collection strategy
Look at your different customer 'types' and have a collection strategy that is suited to that type of business. For example you may trade with local government and private companies. Local government tends to be a low risk but little more bureaucratical involving several calls to make sure your invoice has been authorised for payment. Where private companies involve a higher risk to bad debt, therefore a short collection strategy would be good for them.
Be proactive
When you have a large invoice value or when you start to trade with a new customer, call them before the invoice is due. This should be almost a 'customer service' call and will allow you to establish any issues (such as wrong invoice address, missing purchase order number etc) and resolve the issues before the invoice is due therfore making sure you get paid on time.
Customer focus
Most businesses rely on repeat business, make sure your credit controllers are polite but persistent to make sure you get paid quickly and get repeat business too.
Leverage
Look at what leverage you can use to encourage your customer to pay you more quickly. If you offer a discount, make that discount is conditional on receiving payment on time,or use late payment legislation. The threat of adding interest and compensation under this legislation is often enough to get you paid more quickly.
Legal Action
You should only consider taking legal action to get paid once all other attempts to negotiate settlement have been exhausted. However,when your normal collection activity is not working, you need to make the decision quickly.
Before you start issuing any action through the courts, you must send a 'final notice' letter to your client explaining the consequences of non payment. The courts will want to see you have taken a reasonable approach to gain payment before resorting to litigation.
For more information on effective Credit Management & to get access to credit risk reports, e-learning modules and template letters and forms, take a look at The CMG Zone, our on-line credit management toolkit