Small business credit practices are often an afterthought. I have lost track of the number of times I have heard a client say, “I know I should have….but I didn’t’, and now they have not paid me.”
My standing New Year’s Resolution, designed to be something I can attain, but also a resolution that pushes me to improve is:
Keep in mind the things that worked last year, and do those things more often, while all the time asking, “Is there a better way to do this?”
You are already doing a number of things right. Look at what worked for you in 2018, and keep doing those things. At the same time, resolve to take some simple steps to strengthen your small business credit practices.
Gather and Update Customer Information
Every contact with a customer is an opportunity to collect and update information that may be helpful to you. These days, people move often, so make sure to update address, phone number and email every time you speak with a customer. Do you have current insurance information? A valid credit card? You will not know until you ask.
Remember the 3D’s: Deposits, Dunning and Documentation
Whenever you can, collect a deposit when you extend credit to a customer. Customer with “skin in the game” are more likely to respect the credit arrangement. At very least, require a current credit card on file. Many people pay their household bills with automatic withdrawals. Payments to you should be no different.
Dunning, or billing your customers on a regular basis, seems like a simple task, but it is one that is often poorly executed. Bills must be sent promptly and regularly. They must be legible and easy to understand. They must provide information on how to pay, and who to call with billing questions. This is an easy one!
Proper documentation of all credit transactions, including documentation of the terms of any payment plans is a must. Memories fail us, and details not documented may be lost forever.
A customer contract is your best friend. Use a written contract for every credit customer.
Oral contracts are legal in most states, including Maine. However, once again, if you do not put terms in writing, you leave yourself open to interpretation. In a payment dispute, your customer may remember things differently than you do. Your contract must include how much to pay, when to pay, and the consequences of non-payment. No time for a detailed contract? Send basic details in an email to your customer, and ask them to email back their confirmation. Voila, a simple contract.
Remember, you can take the time beforehand to document your terms or you can argue with your customers afterward.
Stay on top of your accounts receivable, have a plan to follow up on accounts and stick with the plan.
A consistent process of review and action will make all the difference with your accounts receivable. It will boost your cash flow and reduce the number of files you will need to send for outside collections. Involve key staff. Make it fun, or at least take the dread out of the process by coaching your staff on how to talk to customers about a debt. Use a well-written debt collection letter to follow up.
Managing your small business credit practices is not rocket science. It takes commitment and consistent effort. So, for 2019 resolve to keep doing all the great things that made you successful last year, plus a little more.
United Obligations wishes you a happy, healthy and prosperous New Year!