Slow collections can cripple the cash flow of a small business. Few people like to ask for money, but there are some ways to speed up the collection process without being obnoxious.
First, consider offering terms, such as 1% or 2%, net 10. Such terms allow the vendor to take a discount of one or two percent if they pay within 10 days of the invoice date. Beware though, some vendors will take the discount AND pay slow, so this policy may require discretion.
Second, get in the habit of sending statements or gentle email reminders on open invoices. At 30 days passed invoicing, resend a copy of the invoice with a note that the invoice is still outstanding and ask if there are any questions. This is good customer service, is a gentle way to let the customer know you are still waiting on payment, and puts your invoice back on the top of the stack.
Third, encourage your accounting or bookkeeping staff to develop a relationship with their vendor counterparts. People naturally favor people they know and like. If you’re on a first name basis with your customer’s accounts payable clerk, your bills are more likely to get paid before someone else’s, especially if there’s a cash crunch on the vendor side. Sending periodic holiday greeting cards throughout the year is a low cost way to nurture long distance relationships and encourage familiarity.
Taking credit applications up front and checking references is a good way to avoid problems before they get started. Plan to address credit requests quickly to mitigate customer complaints about the application process and be mindful not to tighten credit policies to the point they negatively effect sales.
If you want to take a more assertive approach to collections, consider having an attorney draft a form letter outlining your companies collection process and have it handy to be included with statements to the slowest paying customers.
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