Cash Management Secrets

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

Extending Credit Without Getting Burned

With all the talk of "Financial Economic Crisis", it seems time to stop extending credit, right? The truth is that in many industries this just isn't possible, and even if it is possible for you, it is not advisable even if an account is overdue.

Yes, I did just say, "not advisable even if an account is overdue." Since by cutting off credit, you are likely to lose those customers that typically rely on it for your services.

In a soft economy you rarely make things better by knocking out segments of a supply chain by wholesale dropping overdue accounts, especially ones who have been good customers in the past. What do you need to do to keep good accounts, while reducing your overall risk with overdue accounts?

The answer is a Cash Collection System.

Traditionally, businesses have worked accounts internally as they go from 15 to 30 to 60 days late, all the way up until 120 days late or more. Sending letters, calling, reminding, begging for payment.

Once the business gives up all hope, it throws the account into the salvage yard collections firm. You know the type. Instead of giving you money for old cars or cans or copper pipe, they give you money for your old accounts.

Usually they net back around 10 cents on the dollar to your business. You may think that is pretty good since they are making something out of nothing, right?

Wrong.

The lie these salvage yard collections firms rely on is just that: that these accounts are "garbage." They do what they can (which isn't much) and keep a huge fee for the trouble. Often they will beat up your customers to squeeze out a few dollars to pass along to you.

What a cash collection system does for you is helps determine which accounts need cut off, cut back, or investigated again. A cash collection system helps collect earlier with proactive contacts designed to verify accounts while keeping payments moving towards your firm.

Justin Hitt and I talk a little about a cash collection system that works in our impromptu "interview" on Cash Collections Methods. Setting up your own cash collection system is easy when you know how.

If you have the right cash collection system you can comfortably extend credit, even in tough hardship markets like today. This is because you'll have tools upfront to prevent the account from going to collections in the first place. Something I'll talk about more in another article.

© 2008 Cash Management Secrets, All rights reserved.

Bob Blackburn is a professional collections advisor helping growing companies keep more of their revenues in the business. Bob is the Managing Director of the Cash Recovery Network.

Posted by Bob Blackburn on October 5, 2008 8:58 AM | Permalink

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Insider secrets most collections agencies don't want you to know about, or even consider, when handing over potentially good customers to their vultures. [Read More]

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