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Collecting money on time is the key to keeping your company in business {Part 2/2}

Posted by
May 19, 2015 11:00am
Posted in: Small Business Advice

This is Part 2 of a two-part series on the importance of cash flow to a growing business. In this article, we’ll discuss the specifics of how to go about tracking down payments.

If you want to achieve success as a small business, you of course need to have a great product and a steady stream of customers willing to buy it. Without those basic ingredients in place, you won’t be able to bring in revenue. But there’s another aspect of a successful company that often goes overlooked, and that’s the ability to collect money from your customers in a timely fashion.

“Credit is nice, but it’s not a guarantee. The real question is when you’ll actually be able to turn that credit into cash.”

You might have plenty of customers who have agreed to terms on sales, but that only means that they’ve committed in principle to paying you the money you’re entitled to. Credit is nice, but it’s not a guarantee. The real question is when you’ll actually be able to turn that credit into cash.

This is a problem that companies struggle with every day. Fred Elkins is a professional in this line of work – as credit manager for ND Graphics, he works constantly to collect cash from clients who owe it. Elkins emphasized that collecting money isn’t a popularity contest. It’s not an option to harangue some people for their payments, while letting others slide because they’re friends. Rather, there need to be rules in place that will guarantee you collect from everyone.

Wielding “the biggest bat”
Accounts payable and accounts receivable often bring with them a lot of logistical trouble. Companies are juggling a lot of debts at the same time, and it’s hard to figure out who pays whom and when. Elkins says that in the competition to get paid, “the first person out there with the biggest bat is going to win.” He doesn’t mean “bat” literally, of course.

“If you’re not in contact with your customers, if you don’t know your customers’ trends, if you’re not steady and constantly following up on your accounts receivable – which again, are your single largest asset – you are going to fail,” Elkins explained.

Collecting money and keeping the cash flowing requires following up with customers incessantly and telling them repeatedly that their debts need to be paid. This is a hassle, but it gets results.

Sticking to the rules
Collecting those accounts receivable is a matter of sticking to the rules. Your company should have concrete guidelines in place for when people are billed and when money is collected – and once those rules are established, bending them is not an option.

“You have to put terms out there and stick with them,” Elkins said. “If your terms are ‘Net 30 days,’ you can’t go any further than 45. You’ve got to be on top of them. You have to. If you’re not, you’re going to fail. I run into this every single solitary day. If I’m not first one out there, I don’t get my money.”

“Cash flow, like any other problem in business, is one that requires talented personnel and hard work.”

The longer you let those accounts slide, the more you put your business in jeopardy. Prompt debt collection is what keeps you afloat.

Having procedures in place
Of course, there will always be accounts that cause difficulties – clients who claim money trouble and say they aren’t able to make their payments on time. In these situations, it’s important to be vigilant about enforcing the rules and following up when problems arise.

“You have to have a procedure set up,” Elkins explained. “You have to do your credit checks, you have to know your customers and be on top of them. You have to have somebody doing constant contact with your customers. Devote some time to it. Unless you have those things in place, you’re going to struggle.”

Cash flow, like any other problem in business, is one that requires talented personnel and hard work. Without dedicating time and manpower to your accounts receivable, you’re going to be in trouble.


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