Debtors can suck the cash out of your business and leave you struggling to pay your bills.
Here are some tips to avoid nightmare situations and react to them if they do arise.
Preventative (Shut the gate)
This is the clean slate approach. Stop thinking about your existing customers and clients for a moment and think about the business. If you had to rebuild your business from the beginning how would you setup your accounts? Consider putting some of these preventative measures in place before loaning out your money:
- Deposit, COD or payment up front – Work out under what conditions you would allow them to buy from you.
- Qualifying for an account – Is an account a privilege of doing business with you? Don’t extend credit automatically.
- Credit reference checks – Find out if they are customers for others.
- Stronger trading terms – Something that will stand up in court. Get some professionals to help you with this.
- Outsourcing debt collection – Develop a relationship with a debt collection company, to handle clients and debtors that become unmanageable.
- Use credit limits – Don’t keep sending out stock or doing work if they still haven’t paid you what is owing. Monitor WIPs or stock for those who are behind.
- Proactive payment systems – Use eye catching devices on invoices (do them in bright yellow, it’s easier for them to find).
Once you have worked this out, plan on how to shift your existing debtors into this way of doing business.
Reactive (After the horse has bolted)
Sometimes debtors are impossible to avoid. Thankfully, there are a few ways to manage nightmare situations if they do occur:
- Get organised – Have a step by step system which escalates the problem in a clear and systematic way. Make sure it is firm but fair. Things to prepare: Scripts (What do I say to them), Letter templates (What do I send them).
- Delegate – Often the business owner is the worst person to chase a debt because there is a tendency for people to draw on the relationship. Employ someone objective, unemotional and detached.
- Keep a record of promises – If they promise you something make sure you remind them of their promise.
- Set targets – Have a plan – what percentage of sales do you want to be within terms.
- Weekly meetings – Focus on the situation weekly until you have it under control.
The cost to your business of bad debtors is financially and emotionally too high to leave to chance. Remember to be fair but firm, quick but systematic.
Get moving: Print your debtors list today and check it. Bank your profits.