Imagine a world where all you have to do is send out an invoice and customers quickly send you the money they owe you.
Wake up and smell the roses! That world only happens in your dreams. Collections are one of the most important, and at times most challenging, aspects of any business that depends on accounts receivable for cash flow. I am amazed at how passive many small businesses are about this issue. They seem to be afraid to upset customers. My advice is this — if they are not good at paying you probably don’t want them as a customer.
One strategy is to outsource collections of A/R, or even to hire a factor. Factors are expensive, often charging 5-7% of your accounts. That can amount to the same as borrowing against these accounts at an interest rate of 70-100% annual interest rates.
The Wall Street Journal reports on new software programs that allows small businesses to keep collections in-house and under your control at a reasonable cost. There are several options out there, so make sure to find the one that fits your needs and your business situation best.
Dr Jeff Cornwall
Co-founder of The Entrepreneurial Mind, serial entrepreneur and professor of entrepreneurship.
Great advice and tips!
Like many small business we had a collection issue at one time. However, we put in a simply stratety of sending our reminders to customer 15 days before the invoice was due (we give customers 30 days) another reminder at 30 days and then anyone after 40 days follow up with phone calls. We use SalesForce and are able to automate the process to a great extent.
Most customers want to pay their invoices, they just need reminders.
This process is also great for finding any problem accounts early on. If a customer isn’t happy you will hear about when you ask them to pay.
Thank you so much for the regular posting to this blog – I find them useful reminders and interesting reads – also just the right length for the busy entrepreneur.
I work with many entrepreneurs in South Africa and this issue of collections is true around the world. Worse yet it seems for women entrepreneurs who seem to avoid the money issue as much as possible, from talking to clients about rates and costing out work to collections.
Any advise?
Rachel