So, you have a good product or service. You have clients who want to buy and at a price that is acceptable to you. You have a supply chain. You have sufficient volume to more than cover your general overheads and you are profitable. Job done, right?
Not necessarily. Making a sale is only the start. Unless you collect the cash, the sale becomes worthless.
Here are seven simple tips to help you manage debtors:
- Prior to supply, have clear and agreed terms and conditions which include payment terms (interest/late payment fees, etc). If these are absent, a client will often decide on their own terms and any legal action required becomes more difficult.
- Have a simple, clearly defined process. Most businesses will want a sales ledger clerk, office manager or similar to be responsible for collections. It is important there is a set process to be followed from the point an invoice is raised, to the point when cash is received.
- Have the right person administer the process – someone who is professional, efficient, friendly but firm. The best results are often achieved when that person has established a good working relationship with a client’s payables clerk.
- Invoice regularly and make sure there is follow-up a few days later. This ensures the invoice has been received and has entered the client payment process (approval, processing on the client accounts system etc). Document the date, who the conversation was with and current status.
- Follow up a week before payment is due to confirm that the invoice has been processed and is cleared for payment. Obtain a date for payment. Again, document date, who the conversation was with and the details discussed/agreed. If promises are not met it is often effective to revert to the same person with dates of conversations, action agreed etc.
- Be prepared to discuss a repayment plan. If a client has genuine cashflow issues. It is better in some cases to receive payment over say a three month period rather than receive nothing and initiate legal action, particularly if that legal action ultimately leads to the demise of the client company.
- If all else fails, be decisive. Confirm in writing (recorded delivery) that legal action will be commenced without further recourse if payment is not received within seven days. Follow through and initiate legal action either in house (statutory demand) or via a solicitor/collection agent. At this point, it is often the supplier that shouts loudest who is paid first.