In my recent post “14 Cashflow Tips for Small Business” I briefly discussed methods of customer management that can help improve business cashflow. Extending credit to customers is the norm in many industries and may be necessary in order to take your sales to the next level. Inevitably, you may have to write off some bad debts. However, there are ways of protecting yourself from slow paying or non-paying customers. Be smart, reduce stress and keep on top of your cashflow situation with the following debt collection procedures.
A friendly phone call or email once terms have been exceeded by 5 to 7 days may be all it takes in order to get paid. They may have misplaced your invoice, overlooked it or didn’t know your terms of payment. Query if there is a problem, and ask them when you can expect payment.
Be respectful of their situation and encourage open communication. For emails, have a simple template that you can copy and paste each time.
Every time you follow up late payment, keep a written record of it. Include the date followed up, who you spoke to and when you can expect payment so you have a date to work with for follow-up.
If a customer is having genuine difficulty in paying then offer them a plan to pay the money back over several weeks or months. Once you have agreed on the terms, ensure you send a confirmation through in writing.
I am surprised at the number of invoices suppliers send through with no payment terms written anywhere on the invoice. Such a simple thing! Make sure you include the title “Tax Invoice” (important for GST purposes), the invoice date, terms of payment, your business details, the customer’s business details, your ABN and your banking details as well as the product/service details.
Having the due date clearly written will also help. Take the time to set up your invoices in a clear, consistent and professional manner.
Schedule in a fortnightly or monthly review of your ageing summary report. Print it out, highlight overdue payments and use it as a starting point to follow up late payments. Keep your old reports so you can look back to see any patterns that are developing, and see the progress that you have made in your debt collection endeavours.
Another simple procedure that works. Email or post your statements out promptly after the end of month. Use “overdue” or “friendly reminder” stamps where necessary.
Cashflow is so important for the survival of small business. Make the decision to take debt collection seriously, get your policies down in writing and follow through consistently. Happy bookkeeping!