Collecting your dues

One of the jobs that we love to hate as business owners is collecting money that is past its due by date. Taking a positive view on this, it can be a rewarding way of connecting with your customers although you should not leave it until they are overdue to invigorate your relationship with them. You do not have to pursue them too vigorously to start with. Most accounting systems these days issue reminders to customers about when payment is due in the days prior to the due date. This is set up in the system setup along with how that reminder is worded. The same thing can be done for when payment is not received on time. 

Most people hate owing other businesses money but in tough times it is often the smaller businesses that can have their payment delayed as they are not always perceived as important or in some cases as threatening as the larger suppliers. Sometimes the gentle automatic reminders are enough to spur the payment getting made. They can also be the easiest things to ignore. 

The important thing about collecting debt is to be proactive. There is no embarrassment in asking for a payment date even if the payment is not due yet. Get on the phone early to customers and have a chat, remind them about payment and let them know how important the cash coming in is. They may share some of their issues with you, if payment is to be delayed at least you know. Never hang up without getting a date for payment committed to. The commitment to a payment date allows you to budget for the delayed payment in your cashflow, and makes your customer accountable for the date.

If your business has been operating for a number of years with an established customer database you will know from history who may be a slow payer so focus on those customers first, then focus on your new customers that have not established a trading pattern with you yet. Time is always short so hopefully the rest of your customers will follow their established patterns and other follow up will not be required.

Take the following actions to put your business in a stronger position:

  • At the beginning of a business relationship advise them of your terms and conditions of trade. 
  • Get the prospective customer to physically sign the credit application which, in addition to the above, should include all of their correct billing and legal entity details, existing suppliers as references(who you will contact to help give you some assurance of them being a good customer), and hopefully a properly executed personal guarantee if they are not a sole trader. If you have not done this it is not too late to update this with existing customers, in fact it is good practice to do so.
  • If you are a construction trade business make sure you understand the Construction Contracts Act 2002 and comply with that. This puts you in a stronger position to get paid.
  • Where possible get paid in advance or at least be paid a deposit so that you remain cashflow positive through the relationship.

Remember Cashflow is King and you can collect debt in a proactive and positive way without needing to feel apologetic about it. It is simply an important business function.

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