Happy customers vs. healthy cash flow
Happy customers vs. healthy cash flow – it can be tough to get the right balance between keeping a client happy and getting them to pay on time.
There are few things more difficult for a small business than trying to collect outstanding debts from customers while simultaneously keeping them happy. While a slow paying customer is annoying, even worse is when a customer doesn’t pay at all. To ensure this process is made as easy as possible we have put together some tips to help get paid.
Develop a credit policy
While sometimes boring it is incredibly important, so don’t be tempted to skip over it. It should be your reference on the businesses you will provide terms to, under what circumstances and what the credit limit will be.
Credit reports and an approval process
You should set out the steps for how you take on new debtors, such as collecting relevant information about the debtor and assessing their creditworthiness.
If you start doing business without conducting due diligence then you shouldn’t be surprised if payment terms stretch out or bad debt piles up. When taking on a new customer, ask yourself, “how do I know these guys are going to pay their bills?”
Credit management tools exist out there to help reduce the risk of bad debt. Even the most basic credit report will identify the business you are about to deal with (legal name and ABN/ACN) and whether they are a credit risk. From here you can decide whether you conduct business with them fro example, do you offer them terms or put them on cash up front payments only?
Have Ts and Cs in place
You don’t work for free so getting paid is a non-negotiable. Ensure your terms and conditions are signed off by the client before any sort of transaction goes down. Your Ts and Cs will outline exactly what is expected of them and the steps that you’ll take to collect overdue payments, including legal action.
Managing your debtors
Whether you have one or 1,000 customers, it can be hard to know what sort of financial position they are in at all times or whether they are racking up debts with other suppliers. Debtor monitoring tools like the one provided by CreditorWatch will keep an eye on your customers and warn you if they get into financial difficulty or start defaulting with other suppliers. It’s a great way to stay ahead of a potential bad debt as you can move the client onto COD or put their account on stop until they have paid their outstanding debts.
Outstanding or slow paying customers
The squeaky wheel gets the grease!
Unfortunately, we will all eventually have to deal with a customer that refuses to pay, dodges phone calls, or disappears into the ether. This is where you have to get serious. Send them a letter of demand outlining your next steps as stated in your T&Cs. Register a payment default against them on CreditorWatch – this will motivate them to pay, especially once their credit is stopped by their other suppliers. Commence legal action.
These practices should provide the backbone to any credit management system. By remaining vigilant about credit, you can keep your clients happy while maintaining a healthy cash flow.
Colin Porter is the Managing Director of CreditorWatch.
CreditorWatch is a credit reporting agency with over 30,000 clients across Australia. CreditorWatch provides credit reports, debtor monitoring and debt collections tools. For more information visit www.creditorwatch.com.au