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Chances are when you decided to open your own small business you had visions of new customers and clients beating a path to your door and you were convinced that new business clients and/or customers meant success. What many entrepreneurs fail to set as a priority is their plan of action for collections. Simply stated without a steady flow of incoming cash your business will ultimately fail. To prevent your small business from going into a state of emergency, you need to be proactive in approaching your "outstanding collections". First rule of business - incoming cash flow equals continued business growth!
With the fate of our economical future hanging in the balance, it is crucial to approach your accounts receivables with a firm and consistent approach. Many business owners large or small are struggling to withstand the constant pressures of seasonal slumps and the demands to further expand their products and services. Several companies have been forced to seek external funding reinforcements or have been forced to sell their business to larger companies.
In Addition, some larger corporations have been able to hold a stance by outsourcing their operational needs to smaller independent business owners and while you may think this is a reprieve and will help your small business thrive; keep in mind that some corporations may defer paying your invoices, which will in turn stall your accounts receivable.
Yes, gaining new clients and building professional relationships is essential for building your business; however, establishing a firm collections policy plays a key role in your businesses success as well! Do not make the mistake of neglecting your account receivables; this will result in a negative cash flow policy and allow your customers to feel they have an advantage.
We have compiled six alternative suggestions you can implement today to help build a knowledgeable and informative accounts receivable policy:
Credit History
Before extending credit to your customers do the research on their financial standing by checking their credit report. Their credit report will provide you a glance at their accounts payable history and help you make an informed decision on whether or not to grant them credit with your establishment.
References
Ask customers who are requesting credit to provide you with five business references. This will allow you the opportunity to follow-up with their references prior to granting their business credit. Do the work! Do not neglect to contact their references, this can help save you time and money in the future.
Discounts
Offering an incentive for payments in "cash" or "Paid in Full" can help encourage your customers to make payments at the time of service. Offering incentives does not mean you need to be overly generous - 1.5% is an acceptable rate, remember every discount costs you money.
Late Fee
Apply a two percent late fee to all invoices that have not been rectified within 30 days of receipt. This will encourage your customers to pay their invoices on time to avoid a late fee - 2% can start to add up.
Follow-up
Send your customers a letter the day their account is past due and follow-up with a phone call. Be proactive with your follow-up procedures, if you find that you are receiving no response to your collection efforts; forward their account to a collection agency for further correspondence and collections procedures.
Having a consistent flow of account receivables is more than just a policy or a task you perform; it is the very essence of your business future. Your business simply cannot prosper without a monetary return for the services or products you provide. Should you find that your collection efforts have not been successful contact a third party company for their guidance and support. A collection agency may be able to evaluate your collection process and aid you in devising a collections policy capable of enduring strain; therefore, creating a solid foundation for your businesses future.
William J. Kesman
Credit Services Plus, Inc.
Management & Consulting Services
5005 Rockside Road, Suite 600
Independence, OH 44131
(216) 573-3770 Phone
wkesman@creditservicesplus.com
http://www.creditservicesplus.com/