Many small businesses do a good job by offering their goods and services, but it is difficult to collect payment, often in cash flow crisis. This may be due to the creditworthiness of a customer who has not been examined properly in the beginning, or it may be that not enough attention was paid to monitoring and collection of overdue bills. In both cases, it is for an entrepreneur to set a reasonable credit policy, use proven techniques to optimize cash flow and enforceTerms in a diplomatic but firm, because "it has completed the sale until the money in the bank."
1 Optimize sales in cash to avoid risks
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There is no credit. If your company provides both cash payments and invoices, to optimize the amount of money, the area as a percentage of total revenues, the highest standards for your industry or business.
2 Obtain deposits, where possible
Large contracts to produce-to-order production, and in particularcustom orders should pay a deposit of 10-50% of the final purchase price at time of order. This will go a long way to alleviate the shortage of liquidity and also to ensure commitment to the customer's order. Deposits of this type should not be reimbursed.
3 Suggest a payment by credit card are safe
Make sure that the ability to accept credit cards (Visa, MasterCard, American Express and Discover). This is the best way to make money and reduce payment risks. In manyCases, makes it even easier to order for a customer. Customers can pay in advance from one object to "hold" satisfied at the level of sales for the card and payment processing only after the delivery, or completion of the service. This guarantees the payment (for a period, usually 30 days) not yet appear as advance payment for the customer. For sales of credit card payment is processed, your company invoice generally credited to the credit cardprocessing company in 1-3 days for a service fee of 2 to 3.5%.
4 Progress requires compensation for the ongoing work orders or sales contract
If you produce a product or perform a job for a longer period, for a few months, are in the Purchase Agreement certain times when payments are due (for example, 10% with order, 40% after 60 days, the 'balance at the end). This will go a long way to raise funds to prevent losses and provisions for the continuation of the project. In many contractsSales situations, the actual amount of the deposit of the earnings of the range and is available in advance, the balance or the cost of the product is then transferred from the customer to suppliers under normal conditions of payment.
5 Development and use of a credit application form
Every company, large or small, should be involved in the sales invoiced a credit application. This can be as simple as a page, querying the module provides important information such as name and telephone number of the customerContact Accounts Payable, Director and CEO. The form may also require a minimum of two trade references and a bank reference. A key administrative person (in small companies, which typically is the office manager) is responsible for collecting the information on the form, checking references and what is delegated to a line of credit on the basis of the results.
6 Making a credit for every customer, large or small
Been checked for credit, aCredit limit should fight for every customer. To customers small, if the credit limit set on the basis of their average behavior-up payment may be adjusted. For large companies, if a credit limit based on the amount of risk your company is willing to accept and is a direct reflection of the percentage of your company is willing to devote to a client can be set. Typically more than 10% of your company focus on a customer begins a danger; 30-50% is very risky andmore than 50% is a disaster for the company. Bad things can happen to large companies.
7 Receivables Aging by Total and monitor the customer
At least once a week, the average age of open invoices by customers and total. Assign responsibility (for example, the office manager) for the production and reporting of such information. Develop a relationship "expired" that bill every 5 days or more past shows on your terms. Along with specific objectives based on reasonableThe industry for "average daily requirements," and tie a component of the remuneration Office Manager for the achievement of the goal.
8 Development of standardized procedures for action on overdue accounts
Develop a formal written order of payment, including scripts or guidelines for contacting customers extraordinary bills late. The approach is always gentle, but always to determine how to increase the delay period. In general, the first call request is a courtesy only. A60 days may be reminded of the company relative to its assets and is in danger, after 90 days that their account is only COD and 100 days, before the costs of the process, if it can not receive payment immediately. If the last stage is reached, it would be timely for implementation.
9 Avoid warning and use the phone
Reminders, overdue notices and account statements showing account is usually too late to do nothing but irritate aCustomers can pay a reasonable explanation for a slow payments. Instead, it is preferable that you personally, to ask the phone to customer requests for goods and services representative (on the demand for credit), if the invoice has been misplaced or is there another problem. Usually 80% of payments lenses are resolved in this way, creating a relationship between key personnel from both companies.
10 U.S. charge off rate at maximumAll
It offers a discount is not always the desired results. If the problem is the customer's cash flow, are not able to get the discount. Often, customers who already use to pay on time, you are the most popular. Is it really possible to rationalize this as a reward for good customers, but you've just reduced the profitability accordingly. Discounts that are attractive to customers is usually not effective in the cost of money to compensateYour business. To better understand your customers pay slow, first individually and investigation to determine the potential value of discounting can be your cash flow.
11 Use the accounting system for managing credit and debt management
Many small businesses use accounting systems like QuickBooks or Peachtree and simplified are required with these systems to reduce the amount of time to the management of claims. Credit limits can be set by the customer and the systema warning when entering a new order, this order should result in the limit to be exceeded. Aging reports can be generated by customers in a variety of formats. Data can be exported directly into an Excel spreadsheet and analyzed further if desired. Billing information may also be connected directly to a customer via fax or e-mail saves valuable time can be exported. Contacts with customers and phone numbers are included in the customer data and can be extracted quickly and monitor the reports to helpcalls for the withdrawal. Be sure to help you with all the features of the accounting system for your efforts in the management of credit and receivables management.
11 ways to improve the collection of receivables