All those in favor of ending 2020, raise your hand.
Certainly 2020 was a difficult year in many ways, but the good news is that if you are reading this, you are still standing. This past year has also presented opportunities to rethink our businesses, and find a new (and maybe better?) way to do things.
President John F. Kennedy famously said, “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”.
Many of us took advantage of the opportunity created by the COVID-19 pandemic to change the way we live and work. So which changes will you bring forward into 2021 and beyond?
Personally, I will continue reaching out to older family members, many of whom live alone. I will continue to improve my ability to work remotely wherever I am.
As respects debt collection, we did not have the use of Small Claims Court for nearly the entire year. So, we got better at putting together settlements and payment plans. In the end, settling for a little less money may always be preferable than a drawn out legal battle.
Take a look at your credit practices – the who, what, when and how of extending credit to customers and patients. What care your resolutions to improve in the new year?
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.”
You are already doing a number of things right. Look at what worked for you in 2020, 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. 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 a minimum 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, and 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. For 2021, 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!