Every accountant preaches that cash is the lifeblood of a business.
For a long time the profession has been a voice in the wilderness as everybody else has focused on “turnover, turnover,turnover” .
The finance department was sacrificed by sales executives in sharp suits with an eye on their commissions and year-end bonuses.
As is often the case in the cut and thrust world of business, things have come full circle and the men and women dressed in sober blue are back in the spotlight telling everybody that they were correct all along.
Everybody is in the same boat so there is no stigma attached to chasing small monies, and getting tough is no longer seen as petty or weak
Business captains with eyes fixed on turnover and profit are rapidly converting to the fundamental mantra of the bean-counters, and it’s all about cash generation, collection and retention.
One small firm spent six weeks focused on recouping old debts, the sort that are overlooked when money is no object and the coffers are bulging.
The result yielded around £30k, and most of their customers shrugged and stumped up without too much fuss.
Bringing in 4% of annual turnover is not bad for a member of staff who slotted it into her workload at no extra cost to the company.
“That’s all very well,” I’m sure you’re asking yourself, “but why should they pay up now just because your person in accounts rings them up?”
The key is to remember that everybody is in the same boat so there is no stigma attached to chasing small monies, and getting tough is no longer seen as petty or weak.
It lets them know you are viable and efficient.
Survival
We’ve all walked the fine line between antagonising customers and collecting overdue debts.
Now the rules of the game have changed.
Collecting cash isn’t about goodwill – it’s about survival for some, and for others simply bringing back what is legally and rightfully theirs.
No longer can you let righteous indignation and threats to take custom elsewhere keep you beholden to a poor payer who racks up 180 days of credit as a rite of passage.
Remember: if your service is good they won’t switch to another supplier, in spite of their threats and howls of protest when you push for payment.
These idle threats – and in the vast majority of cases they ring hollow – are bullying, plain and simple, and need to be met with a firm but polite response.
We all know that the kid who faces down the playground bully earns respect and doesn’t suffer any further hassle.
Obviously each case has its own merits and arguments but you’ll know yourself when the above advice won’t work, on rare occasions.
A customer who abuses agreed credit terms needs to be reviewed carefully to ascertain whether they are worth keeping as a customer at all.
If they go bust you’ve lost more than your profit margin.
Just think how many more sales you need to make to recoup the lost costs of the sale.
Do the maths!
Formations Direct, leading UK company formation agents and business start-up specialists, understand the challenges of small firms and have devised a short list of tips for SMEs to ease the credit control task:
- Send statements on a regular basis
- Make sure staff are trained and understand their role in the credit process
- Establish a weekly routine for follow-up phone calls
- Follow statements up with reminders on a fortnightly basis
- Build a relationship with the right people in your customer’s firm
- Get them to commit to a payment date
- Make a record of your calls and who you spoke to
- If you make a threat to issue proceedings follow it through
- Always be firm but polite
- Never make an excuse for collecting money owing
- Train staff properly and make sure they’ve got the abilities for the task
- Follow your gut feeling if you think they’re taking you for a ride
- If alarm bells ring, act swiftly
- Talk it over with your accountant
- Ensure your contracts and credit terms are clear and up to date
- Have a firm policy for granting credit and don’t be bullied into bending it
- Obtain director guarantees on limited companies with little or no history
- Perform credit checks on your customers, subject to data protection rules
