Stay on Top of Your Receivables!

Some of your customers are having financial problems. Some are going broke. If you knew which ones, you’d be able to manage your own interests more effectively. But you don’t.

The risk of bad debt loss today is very real. I’ll spare you the “today, more than ever …” line here, but you get my point.

So what are you going to do about the heightened risk of bad-debt loss? You’re going to manage it – and we’re going to show you how.

Step 1. Remove All Doubt.

I’ve met a lot of people who lose the receivables collection battle before it’s ever begun. Why? Because, for some reason, they look at debtors with empathy and somehow don’t want to be “tough” on them. If this is you, snap out of it! Talk with someone who can help you: your partner(s), employees, board members, bankers, or even a psychologist.

Think about it. Your customers requested credit terms. You agreed. They purchased your product and made a promise to pay. We’re all adults. You did your part and delivered the goods or services. Now their part is to pay. If they are having problems paying, it’s okay to “feel for them,” but your job is to manage your own business effectively and prudently, not theirs. Your job is to protect your own employees, vendors and shareholders. You must do it with maturity, courage and discipline. This means getting paid using whatever legal means necessary.

Feel emboldened? Good.

Step 2. Manage Expectations.

After you’ve decided that you will require customers to pay in full and according to the terms (or if they are already late, begin making real progress toward catching up), go to work on your employees and customers. Explain to them what is expected, what will be tolerated and what won’t. If certain customers
have not quite paid on time in the past, talk with them. Further, send a formal letter outlining your payment policy. If things need to change, go ahead and change them.

Step 3. Study Your A/R Aging at Least Once a Week.

Collections are all about vigilance – having a plan and following through on it religiously. So watching your A/R aging regularly is essential. As accounts begin to approach their due date and remain unpaid, it’s time to implement whatever response you developed for this occurrence. Typically, it’s a phone call to the customer or a letter or email that says something simple like:

Dear Cheryl,

This is a friendly reminder that our records show that invoice number 2212 for $300 is due in just five days
(March 30) and remains unpaid. To ensure that you’re aware of it, I’ve enclosed a copy.

As always, we appreciate your business.

Please call us if you have any questions or concerns.

Regards,

Jack Benson

Office Manager

Of course, some accounts may be past this point so then it’s a matter of taking appropriate actions. Often, it’s about working out payment – progress – with the debtor. Develop an understanding of “where do we go from here.” Then it’s your job to help your debtor meet those terms or “do what you have to do,” whether that’s to refuse further shipments or begin legal action.

Step 4. Be Objective. Be a Gentleman (or a Lady), but Deal with Reality.

The reality is, in every troubled account case, SOME vendors are getting paid. You know what I mean? The customer that owes you money IS paying SOME people, just not you. The question is why others are getting paid and you aren’t. Likely it’s simply that the other vendors are requiring payment. How does that make you feel?

If you have a hard time dealing with your collections objectively and firmly, consider getting someone else to handle the task. Some people are great at it and some are just terrible. Similarly, some people actually like to handle collections, and they’re usually the ones who do it well.

A common characteristic of a poorly run company is weak credit and collection policies and practices. Could this be you? If so, endeavor to turn it into a strength of your firm. It could mean the difference between survival and failure.