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Accounts Receivable Management and Credit Practices for Your “New Normal”

The Chinese use two brush strokes to write the word ‘crisis. ‘ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity.” – John F. Kennedy

Uncertainty is never good for small business. However, we live with some degree of uncertainty all the time. Will the new product sell? Is expanding the office a good idea? Will the new manager succeed?

We manage uncertainty in our businesses by gathering as much information as we can and making an informed decision. We monitor results and make any necessary.

So what happens when the world throws your small business a curve ball like the Covid-19 crisis? It is hard to get accurate information, and the changing nature of the virus makes planning difficult. Your business may be closed, or operating at a reduced capacity. This time, you may or may not be able to make informed decision. 

We can be crushed by the uncertainty or we can control some things that are in our control.

This is a perfect time to set up or revise your accounts receivable management program. 

Develop and commit to a process to monitor and track your your receivables. You (or a staff member you trust) should be intimate with what you have outstanding at 30, 60, 90 and over 90 days and have a plan of what to do at each stage of aging. Get on the phone and speak with your customers. Send a well worded collection letter. Hire a collection agency. Use the court system. In short, take action!

Accounts receivables management, if properly executed, will impact every aspect of your business. You will have more time, more sales, better cash flow. On the other hand, if you do not manage your receivables, they will end up managing you.

Do you have a plan to extend credit to customers in a smart way?

Whether the economy tanks or recovers quickly, you may still have to decide how to extend credit to customers. Extending credit gives you a competitive edge, and deepens your relationship with customers. Take a look at what you are doing now and consider how you might improve your credit practices. 

Get to know your customers. Not every customer deserves credit from you, and not every customer to whom you extend credit should get the same terms. Do as much as you can to gather as much information as you can on a new customer, including credit references, and verify them.

Develop or strengthen customer contracts.

Now more than ever it is important to document your customer credit arrangement with a contract. It is nice to think that you can do business on a handshake, and sometimes you can, but why take the chance? Many of the files that land on my desk as delinquent desks are undocumented “handshake” deals. An oral contract is often accepted in a Court of Law, but an oral contract leaves open the opportunity for a customer to remember your oral arrangement differently, and remember it differently they will as soon as there is a payment dispute or delinquency.

No time to prepare a formal contract? Send a simple email confirming basic details including when and how you expect to be paid, and what will happen if you are not paid on time. Remember though that a contract must be bilateral, so make sure that your customer confirms that they agree. Once they agree, you have a simple contract, which is certainly better than nothing at all.

Make it easy for people to pay you.

The ability to set up payment plans and to take online payments has really helped our business in this crisis. If you do not have an online payment portal, now is the time to invest in one. 

Consider these times an opportunity to share your “new normal” by shaping policies that will protect your business in the long run. 

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