business is always short on cash. Any
- Always Broke
frequently feel the crunch of cash flow
shortages. The constant struggle to pay
the bills can become discouraging. One
way to relieve that constant pressure is
through better management of company
you make a sale, you need to set your
billing policies or your customers will
set them for you (and they won't be in
your favor!) If your product or service
goes out the door without payment, you
are essentially lending money to that
customer. Are they worthy of your credit?
Prevent problems by asking for credit
references. Then, take the time to call
those references. Are they listed in Dun
& Bradstreet? Ask why they left their
last vendor (perhaps they have a string
of unpaid vendors ahead of you?) Be
cautious and firm and follow your gut
instincts about a potential customer.
More than likely, your instincts are
right on the mark. Trust them.
a policy to never let a job
or product leave your business without an
invoice. It may seem like an
inconvenience, but your collection rate
will improve dramatically. There are
several reasons for this. First, it is
easier for a customer to relate the value
of your product to the price you have
charged. As time goes by, that warm,
fuzzy feeling wears off and a customer
may not be as eager to pay as they
initially were. Second, if your customer
receives your invoice weeks after they
have received your product, they may feel
that there is no reason to pay quickly.
In their minds, if you can afford to wait
to bill them for weeks, you can also
afford to wait several more weeks for
them to pay. Finally, staying on top of
billing evens out your cash flow. Instead
of billing once a month (or when you are
desperate for cash) and waiting another
month to get the money, you will have
money coming in on a steady basis.
a retainer, a deposit, or COD
customer has proven to be a poor payer,
ask for a retainer. Do not be
embarrassed. (They were not embarrassed
about owing you money all the time. Why
should you be now?) You can simply say,
"Based upon your past credit history
with us, we will need X amount in advance
and the remainder when the job is
completed." Or, type up a payment
agreement, have them sign it, and then
give them a copy. It is harder for
someone to put off paying when they have
a signed agreement in their hands.
want to offer discounts for invoices paid
within a certain time frame. One common
offer is a 2 percent discount if an
invoice is paid within 10 days.
squeaky wheel ...
up immediately on unpaid invoices. Your
customers will quickly size you up as to
whether or not you are someone who
expects to get paid . When prioritizing
their payment schedule, your customers
are more likely to put you at the head of
the list if you have a reputation for
following up on a regular basis. It is
best to set a payment date on your
follow-up letter and call your customer
on that date if your payment has not yet
been received. Having a written script
for any follow-up phone calls you may
need to make may make this process easier
that it is your business. You call
the shots. If you let your customers
dictate when you will be paid, you will
always suffer a poorer cash flow than if
you are aggressive about your payment
policies. So, take an hour, sit down, and
write up your payment policies.
will you offer credit to?
much credit will you offer?
will you determine your
customers' credit worthiness?
will your bills go out?
what time frame will you expect
will you follow-up if a payment
is not made?
sit down to set your policies, consider
my favorite antidote:
owned her own restaurant supply business.
Jesse, the owner of a small catering
business, was a new customer of Sally's.
Jesse owed Sally money for products Jesse
had purchased for her business. Sally
invoiced Jesse for these products, but
Jesse failed to pay her bill on time.
Whenever Sally tried to follow up on the
overdue payment, Jesse cried about how
poorly her business was doing and how she
could not possibly pay her bill at the
moment. Finally, Sally became so furious
that she called to demand payment. She
had decided that if payment was not made
immediately, she would send Jesse's bill
to a collection agency. Unfortunately,
when Sally called to confront her
delinquent customer, Jesse's secretary
told Sally that Jesse and her husband
were not available to make payment. They
were vacationing in Hawaii for ten
question is do you want to be the
one who finances your customer's tropical
written by Cindy Vandewater. Cindy
Vandewater is a C.P.A. offering personal
and small business accounting, tax, and
consulting services in North Hampton, NH.