Is your business cash flow tight? Get paid sooner!
A healthy cash flow is vital to keeping your business operating optimally. Should a large percentage of your customer's delay, their payments or – in the worst-case scenario – refuse to pay you, your business could be placed in a very difficult position. Hence the importance of effective debt collection; unfortunately, one area of cash flow management where many businesses underperform. But debt collection doesn't have to be the trial some make it out to be. With the aid of a suitable assistant and a workable protocol, you can ease the process of debt collection and consequently improve your business cash flow.
The Best Person for the Job
Debt collectors invoke a negative public persona. They are typically portrayed as mean and uncaring thugs who harass hard-up people for payment. Of course, most modern businesses would never resort to such bullying tactics. Instead, they expect their bookkeeper to follow up on outstanding payments. But while your bookkeeper may be an expert at finances and accounts, it doesn’t necessarily mean he/she enjoys trying to get your debtors to pay up. In fact, your bookkeeper is probably the last person you should charge with that responsibility.
The role of debt collection (formally known as “accounts receivable”) is better suited to a person who’s outgoing, confident and not averse to “handling” people. The ideal debt collector should be well organised; possess excellent time management skills, and have the ability to build up a picture of customers’ habits and tendencies when it comes to making payments.
Did you know our receptionist has often assisted our clients with chasing outstanding debts from their customers? Recently one client had been waiting more than 6 months for a $30,000 payment, always one excuse after the other. Nicole called on behalf of the client and was able to achieve payment successfully in just a week!
Measuring Your Debt Collector’s Effectiveness
An analysis of outstanding payments showing 30-day, 60-day and 90-day intervals will unfortunately not give a clear picture of the average accounts receivable days (i.e. the average number of days it takes a customer to pay their invoices) for individual customers. Businesses which operate on 30-day payment terms may not realise, until it’s too late, that some customers are prone to waiting much longer – on average – before paying.
Did you know Xero now has “auto reminders” so you can have reminders sent to your customers, a group of customers or just specific customers, every week, two weeks, month, etc.. without you having to log in and send.
Creating an Action Plan
Now that you’re more knowledgeable regarding the process of debt collection, you can create your own effective action plan, using these four steps to guide you:
Debt collection is admittedly far from being a fun job, however, it is essential to maintaining a healthy cash flow so your business can stay afloat.
For more information on effective debt collection measures, contact SMART Business Solutions. Nicole, our smiley receptionist, has been known to collect quite a bit for client’s having some issues, and all it takes is maybe a bottle of wine or chocolates J.
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