Cash Management Secrets

Proven cash management strategies that improve cash flow, collect past due money, and increases profits in tight credit markets.

Avoiding Collections Alienation

When customers owe you money, how do you collect without alienating future buyers? Every market has a limited number of prospective buyers; this is especially true for the business-to-business organization with a local business prospective.

There is another fact that should concern you. More than 90% of customers will pay late at least twice a year in the normal course of business. Some will get to the point they become delinquent.

What should scare you even more is the fact that customers cost more to acquire this year than they did ten years ago. For what you spend, many business owners cannot afford to lose those periodic slow pays in a collection process.

If you collect too hard you alienate customers and they will leave for someone else, or worse if you collect too soft your customers will more regularly abuse their credit accounts. It's critical your collection process break the habit of delinquency AND keep valuable customers.

The question you should really ask is, "Are you in the business of making a profit or giving away free loans?" Essentially, when a customer takes their time to pay you, they are taking advantage of your money, in effect borrowing from you instead of a bank.

An ineffective collections process is like loaning money to your customers, interest free, instead of collecting your money quickly to grow your business. If you do this wrong, you'll push away good customers.

Internal collections departments just don't have the skills or resources to collect without sending most customers walking. They want too, but who can afford the thousands of dollars a month required to manage a well-trained team for just a few accounts.

Outsourcing your collection early will often get your money and keep your relationships strong with customers if you choose the right firm. Here's what you need to ask, "What steps do you use to collect and NOT alienate my customers?" and "How does your collection system break the cycle of slow pay accounts?"

Many outside firms have both the resources and skills training necessary, but not all collection agencies are the same in this aspect. Look to those who focus more on revenue retention and customer relationships rather than just sending letters that done address your bigger challenges. Isn't it about time you collected your money AND kept valuable customers?

Posted by Justin Hitt on November 20, 2006 10:34 AM | Permalink

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