by Rick Baker
On Dec 14, 2010
7 Tips for creating smoother & less-stressful collection of money owed to you
- Understand the party you are dealing with:
- Is the party creditworthy?
- What’s the party’s current financial and ownership status?
- What’s the party’s process for paying its bills? [who, what, when, where, how…why?]
- Who are the key contacts?
- Understand exactly how they go about making payments
- Understand how the party pays its best supplier
- Understand the specifics of the Purchase & Sale agreement
- Keep your invoices simple and clear
- Issue your invoices consistently…same timing, same method of delivery, etc.
- Over-communicate about your invoicing process…example: send notes explaining your process
- Have a disciplined collection process…write it out…make sure each step is clear. For example:
Step 1: issue invoice on the __ day of the month
Step 2: __ days later contact __________ to ensure your Client received your invoice
Step 3: __ days prior to due date contact ___________ to __________
Step 4: depending on the complexity of your Client’s internal approval process…repeat Step 3
Step 5: [from time to time] when due date arrives contact your Client to thank them for paying
Step 6: in the event payment did not arrive on time
- immediately contact your Client to let them know
- request your Client’s – i.e., your key contact’s - help…ask for an immediate correction
- be friendly, be objective, be clear, & be firm
Step 7: in the event payment is ‘stretched’…see the next Thought Post on this topic…or contact us for suggestions
- Make sure your employees are trained on all aspects of your collection process…including ‘interpersonal skills’ training
Footnotes:
Question: How can we do better at collecting?
Answer: Have a disciplined collection process, make sure your people always follow that process, and make sure your Clients know your people have a process and will be following up closely if/when payments are not made on time.
Question: Why spend time on improving collection?
Answer: Improving collection
increases your bottom line a number of ways:
- At one end of the spectrum – it reduces bad debt
- At the other end of the spectrum – it reduces your people’s stress levels…better concentration, less mistakes, less talk & more action, etc.
- In between – it reduces use of your line of credit and interest costs, it makes your accountant happy, etc.