Cash Management Secrets

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

When Even Honest Customers Don't Pay

Most of your customers are honest hard working professionals, so why are their so many problems getting paid for work you do. You'll often get stung by your best customers if you don't understand what I'm about to share here.

As business owners we know very few of our customers by name, and even those we know, we probably have very little contact with outside of our business. We don't know their kids, or friends, or what they do on the weekends. But, if we are invoicing for goods or services, we still let them tell us "put it on my account."

No credit check, or application. You often do get a signature (at least some have learned), but even then it's on a contract without provisions for late fees or collections disclosures.

This leaves us in an interesting position. You have taken them "at their word" that they will pay us, but you really don't know if they will. Now I hear you saying, "Most of my customers pay on-time, it's just a cost of doing business."

As a business owner or manager we devote huge amounts of thought, time, and energy to creating a profit through our business. But, then we literally give our product or service to the customer with little more than a handshake as a promise to pay.

Yes, most of your customers will pay on time but it takes only a few to cut into your margins by NOT paying. I've even seen good business relationships hurt by not having an understanding that even good customers don't pay sometimes.

Now when a customer doesn't pay you are on the line for not only the profits you have earned, but also the cost of the goods or services they have consumed. Plus, the costs associated with pursuing the account, and certain opportunity costs for not getting paid.

So, don't extend credit, right? No. Credit is necessary in business-to-business services as much as it's necessary for consumers. Start improving collections by shoring up three parts of your business: (a) pre-sale disclosure of payment terms, (b) contractual arrangements for delivery service and receiving payment, plus (c) a clear cash collection system should you need it.

Consider these points three legs of a stool that you'll set your business future. A weakness in any one leg puts your business on uncertain footing. You may never need to collect if you properly implement this system, but if you do, you'll get more money in less time.

© 2008 Cash Management Secrets, All rights reserved.

Bob Blackburn helps businesses increase profits by collecting overdue receivables faster while keeping valuable customers. Download Bob's recent interview on Cash Collection Methods at http://go.jwhco.net/3a6d21

Posted by Bob Blackburn on September 25, 2008 8:49 AM | Permalink

TrackBack

TrackBack URL for this entry:
http://jwhco.com/mt3/mt-tb.cgi/763