The sales team are working hard bringing in lots of new business, but how does a small company ensure that these sales are converted to hard cash? Cash is ultimately the lifeline of any small business - in fact, 82% of small businesses that fail do so due to poor cash management. So what steps can be taken to ensure you are not one of these fatalities?
Research, Research, Research:
It’s important that you research your potential customer before taking them on, in order to assess their suitability. Examples of potential questions to be answered include:
- How credit-worthy are they?
- Do they have any county court judgements raised against them?
- What is the general chatter regarding their financial health?
In the age of internet and social media, all of this data is easily accessible. Companies House or credit agencies such as First Report are always a good source of information.
If, like us, your company serves new businesses, then there may be little credit history to base an opinion on. This is okay, provided that you follow the steps below to ensure that you minimise bad debt.
Timing and Accuracy:
It’s imperative that you invoice your customers in a timely manner, and that the invoice details are correct. Inaccurate invoices can lead to unnecessary delays in payment. Ensuring your invoice has been received and reached the correct department is therefore extremely important. There is nothing more frustrating that calling companies regarding outstanding balances, only to find they haven’t received the invoice!
It is also a tactic customers will use to delay payment. So make sure that you email the invoice with a read receipt, before following up with a phone call to check the invoice has been received. By keeping contact details up to date, you will also make life a lot easier for yourself!
Simple and Clear Payment Terms:
It may sound obvious, but simple and clear payment terms displayed on your invoice and contract will lead to less disputes in the future. Taking time to ensure that your terms are clear from the offset will pay dividends in the long run.
Use Direct Debits:
If you invoice your customers a regular amount at regular intervals, then setting up a direct debit may ease the cash collection process. A direct debit is set up by you to collect a regular payment at regular intervals from the customer. Once set up the customer doesn’t need to worry about sending you a cheque or making a bank transfer, the payment will go through automatically, provided the cash is in their account.
Offer a Discount:
Offering a discount for prompt payment - or payment by direct debit - can encourage customers to pay on time. Prompt cash collection leaves you more time to concentrate on other activities - plus, who doesn’t like a discount?
Systematic Processes:
It's important to have a credit control process in place, and to stick to it. Set dates for invoicing, sending out reminder letters, following up with telephone calls, and issuing stop letters, legal notices and court action. Ensure that you follow through with your predetermined actions on these dates. Some customers will only pay when they receive a final reminder or even a court letter; therefore, having a system in place will ensure that these customers don’t get forgotten.
Build a Good Rapport:
Building a good rapport with your customer and the person responsible for paying the bills is key to effective cash collection. Having a good relationship can help push your invoice to the top of the pile for payment. It will also help you learn more about what's going on in your customer’s business, which might prove useful in the future. Here are some tips to help develop a good relationship with your customers:
- Be professional and polite. Show respect to the people you are calling, use their name, explain the reason for calling, allow them time to get the information they need to answer your question. Stay positive and smile as you speak, as this will make you sound friendlier.
- Stay fresh. Credit control calls can be draining, but you can guarantee a better outcome if you treat each call as if it was the first of the day. Make sure that you stay fresh and energetic.
- Remember customers may be busy and are not necessarily avoiding you. Never be threatening, always be friendly and positive. Listen to them, they may genuinely be struggling to make payment, and if this is the case, consider suggesting a payment plan - this may help to alleviate some of the pressure they are experiencing.
- Make notes following the phone call. Perhaps the accounts payable person has been on holiday? Ask them about it during your follow up call - these little things help to build a strong relationship.
Follow up:
Make sure you follow up on promises from customers, and try to seek a definitive outcome from your calls with clients. For example, if the customer tells you they will pay you on the next payment run, ask when this is and note it down. This will give you a valid reason to call back if they don’t deliver on their promise.
One Final Point:
Collecting payment is not always easy and you will sometimes find your patience tested by demanding or uncooperative clients. However, your chances of meeting your objective will be diminished should you lose your temper; instead, it’s far better to stay polite and positive throughout the process. That way, you’ll likely regain the funds owed to you as well as retaining your sanity!