Will inflation continue to rise? Will higher costs erode consumer confidence? Will fewer sales usher in a recession? The “experts” all agree on one thing, and that is that the economic signs are mixed. Stock market and employment numbers are strong, yet inflation is still high and consumer confidence is low and getting lower.
Recession or no, the time has never been better to tighten up your credit and debt collection policies and practices. Many consumers will still need your product or services. Be prepared to offer them in a way that makes them affordable for customers while still protecting your business from non-payment.
Here are some things you can do:
Clear and concise credit policy in writing.
Your ability to grant credit (in a smart way) could separate you from your competitors in tough time. All customers do not deserve the same terms. Set your credit terms and conditions and commit them to a written customer contract.
The Two D’s – Deposits and Discounts
A deposit should be part of any credit arrangement. Customers who have actually paid something have “skin in the game” and are more likely to adhere to credit terms. You might think that I have lost my mind recommending discounts in a tough economy, but they can be powerful tools if used correctly. Consider discounts for immediate cash payments. You can also provide a discount for early payment on a payment plan.
And speaking of payment plans
Offering customers the ability to pay you in installments will be key during an economic downturn. One size does not fit all and all customers do not merit payment plans, so structure them carefully and always put them in writing.
Some keys to effective payment plans:
- Make it easy for people to pay you. Set up an payment portal on your website. Accept multiple forms of payment, including Venmo, ApplePay and MetaPay.
- Adjust as needed. If a customer is having trouble making payments, you can temporarily lower payment amounts. Make sure the change is agreed to in writing. You may be in a position to allow customers to skip a month or two, and add the skipped payment to end of the payment term. Again, as always, get it in writing.
- Offer payment of full balance – Not everyone is out of work or out of business. You may have customers who are doing well, and now is a great time to offer a payoff. Your can offer to waive interest or offer a small discount to pay the balance in a lump sum. It is very important to communicate these offers as “limited time only” opportunities.
Each time you make contact with a customer who is experiencing trouble making payments, you have an opportunity to solidify your relationship. Customers who know you care about them and are willing to work with them will stick around.
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.