Dr Jeff Cornwall

So do you want to be your customer’s banker? That is exactly what you become when you extend them credit on sales. Collecting these accounts receivable is critical to healthy cash flow, and yet many entrepreneurs simply send out the invoices and wait…..and wait……and wait…….
From Forbes.com:

Hounding delinquent customers is touchy work. On the one hand, you need the cash flow to fund your daily business operations; on the other, you don’t want to seem like an overbearing ogre, especially if you know the debtors personally. Receivables are essentially unsecured loans, so a debtor is indeed what a late payer is.

The longer you wait to collect, the less likely you will be to ever get your money. And remember, it is your money.

One of the very first real “systems” that entrepreneurs who extends credit to customers need to put is place is one that allows them to track and collect accounts receivables. Here are a few things to keep in mind:
– Set up your accounting software to get an accounts receivable report. Review the report at least once a month. At first you may need to review it once a week as you get things under control.
– Set up a contact schedule. At a minimum you should send out a second invoice after 30 days. After that, you should begin regular telephone contacts — every two weeks shows urgency without antagonizing clients — to get updates on payments.
– Don’t start out as a hard guy. Give the customer the benefit of the doubt. Be prepared to work with them on payment plans if necessary. Make sure to stay on top of any agreements to make certain that this is not just a stalling tactic by your customer.
– Don’t wait too long to take action on deadbeats. Your attorney can prepare a standard letter if you have large accounts receivable. Collection agencies may need to become a strategy at some point, as well.
– Remember that sometimes you need to fire a customer. Too many times I see entrepreneurs sit back passively and watch an account grow and grow, getting older and older. They are afraid to act. But, if they do not pay, they are no good to you anyway. Sales don’t matter if there is no cash!
– Watch your payer mix. The best rule of thumb is to never let any one customer represent a larger percent of your total sales than your average profit margin. That way if you need to fire a customer, you can still pay your bills.