Take Control of Your Collections Process

Take Control of Your Collections Process

One of the most important points to establish with new, or even existing customers, is a clear understanding and expectation of price and payment terms. It is critical for a small business owner to be confident when discussing price and payment terms. If you don’t demonstrate confidence in your sales and collections process, you find yourself selling below market price and not enforcing your payment terms. So it’s imperative that cost and payment terms be included in the sales discussion.

The following suggestions will improve the effectiveness of your collections process:

  • Run a D&B report on the customer's payment history and discuss any issues you see.
  • Send a confirmation to the customer thanking them for their order and include the agreed upon terms.
  • Include a copy of the agreed upon terms when you mail your invoice to the customer's Accounts Payable department.
  • Speak to the Accounts Payable department in advance to see if they have any special information or documents required in order to pay in a timely manner. Do they need a signed PO or Proof of Delivery?
  • When receiving a purchase order, make sure to review the terms and resolve any discrepancies.
  • "The squeaky wheel gets the grease." PROMPTLY follow up by telephone when an invoice is beyond terms (Forget sending statements by e-mail or snail mail!) If your payment terms are 30 days, call at 32 days if payment has not been received. Do not wait until 45 days to make the first call!
  • When making collection calls, make sure you are polite and (when appropriate) include some humor. Acknowledge the difficulties a customer's staff faces in times of tight cash. Being a genuine caring person moves you up or keeps you higher on their payment list.
  • Be open to asking for partial or good faith payments if the client cannot pay in full.
  • Consider purchasing Accounts Receivable insurance. There is usually a percentage fee and a deductible associated with this coverage. You can now explain to your customers that once their account is past a certain limit (i.e. 60 days) you are required to turn it over to the insurance company, which will begin a collections process that may impact a company’s credit rating. Now you have some more leverage.

While following the above suggestions does not guarantee results, you will have taken solid steps towards improving your chances of receiving timely payments.

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For more information please contact us at info@michiganCFO.com.