You know it’s a tough market when the marketing and sales staff spends an inordinate amount of time managing collections. With cash so important during hard times, it can be a virtual tug-of-war with your customers to get the cash which is due and payable.
Here are few thoughts on how to manage your accounts receivable in a down market:
1. Manage the terms on the front end. Be sure to put all terms and conditions in writing up front and take the time to discuss them before accepting the order.
2. Do credit checks. Although a poor credit history may be a lagging indicator of a company’s health, it is best to know who you are doing business with and how they pay their bills.
3. When a net 30 invoice goes unpaid, call them right away. This sends a signal that you are on top of things and won’t tolerate late payments.
4. Talk to your late paying customers. Often when a customer falls behind on payments they become the enemy; it is common for communication between vendor and customer to stop. This is exactly the wrong thing to do. Instead, keep an active dialog with them and treat them humanely. Generally, this approach will insure that you get paid.
5. Put someone in charge of accounts receivable. While larger firms may have an accounts receivable manager, most small firms don’t. Appoint someone the honor of managing your collections and give them special incentives to help usher the money home.
6. Focus on the biggest fish. Prioritize your collection calls on the biggest dollars first. I know that this sounds silly, but it is common to work a collection list by the alphabet.
7. Have the sales department push credit card purchases for the smaller orders. This is guaranteed cash.
8. Call on Monday. This is only anecdotal, but it is my experience that the best time to call is Monday morning. People are generally happier and more optimistic on Mondays. Get their attention before the Friday check run.
9. Consider the creation of a promissory note. This may best apply to a large customer who is behind on multiple payments. In this instance, the party owed renegotiates all the outstanding receivables with the slow payer. This typically elevates the discussion with the management of both parties. Do this only with someone who is likely to stay in business and eventually pay.
10. Consider a cash only relationship for firms that consistently miss payments. It may be harsh but you may not have other options.
Cash is king, so make sure to get your fair share. Believe me when I say it is your number one priority in a down market.
John Bradley Jackson
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