Are we managing our debtors correctly?

Making a big sale is exciting, especially for a new business. But getting paid late, spending time and money chasing overdue accounts, or worse yet, not getting paid at all, can destroy a business.

If you sell B2B, chances are your customers are going to demand payment terms. So before you start selling, it is essential to establish clearly defined credit policies that follow good credit management practices.

Being prepared to walk away from a sale is difficult, but if the payment terms a customer is demanding are not reasonable, if they are a chronically late payer, or if their credit does not warrant selling on terms, it may be necessary.

Be proactive to protect your business

Growing sales is exciting while managing credit can be difficult, boring, and time-consuming. It is very hard to turn down a sale, but not following good credit management practices at the front-end can be disastrous at the back end when you have to spend time and money chasing unpaid invoices.

To increase your chances of getting paid on time and in full, you must establish and follow good credit management practices from the get-go.

How to make sure you get paid in full and on time

To increase your chances of getting paid on time and in full, you must establish and follow good credit management practices from the start or start right away. Below are good credit management practices to increase the odds that you’ll get paid in full and on time. Please implement them.

Create policies: Establish clearly defined credit and collections policies upfront, before offering credit terms to any customers. This should include determining how much credit you can afford to give without impacting your cash flow, deciding which customers will qualify for credit and how much, establishing your payment terms, and clarifying your collections process for overdue accounts.

Require a credit application: Have all customers complete a credit application before agreeing to provide credit. There are lots of templates for B2B credit applications available online if you’re not sure where to start. Research and get to know your customers by using credit bureaus and asking for trade and bank references. Check those references!

Track and review payment patterns for existing customers on a monthly basis: This will help you identify any changes that might signal a potential problem. For example, if a customer who always paid on time begins to pay later and later, it may signal financial distress, and you will want to re-evaluate their terms and credit limits before things get out of hand.

Communicate your policies to customers: Clearly lay out all payment terms and conditions in writing on all contracts and invoices, including late payment penalties, and make sure you actually implement your late payment charges.

Ask for deposits: Make sure to require a deposit for large orders, custom orders, and for new customers with limited or questionable credit history.

Invoice promptly: Invoice right away, and call your customer after sending the invoice to confirm receipt and highlight payment terms and due date. Follow up immediately by telephone on overdue accounts.

Accept multiple payment options: This includes checks, EFT and credit cards. Make it easy for your customers to pay you!

Offer early payment discounts: Offer discounts to clients who pay early to incentivize prompt payment, such as a 2 percent discount when an invoice is paid within 10 days.

Refuse new orders from overdue accounts: Do not accept orders from clients who are not paid up, and implement COD policies for chronically late payers.

Do not pay sales commissions or bonuses until payment is received: A sale is not a sale until the cash is received. Incentivize everyone in the company to make collections a priority.

Focus on having a diverse customer base: Having a large and varied customer base means that a payment problem with one customer does not put the entire company at risk.

Remember, a sale isn’t a sale until you get paid! Up until you get paid it is an expense. As difficult as it may be you have to understand that there is no point in doing business with customers that are real bad payers. You will suffer more than they will – so it is better that they suffer.

The writer is a Kigali Based business consultant and strategist.

www.gmskigali.com

E-mail: john@gmskigali.com