Some quick advice – Founder to Founder…

Hello there

For some reason, my brain’s more busy than normal (can’t think why!) and my thoughts are turning to sharing with you how to improve your chances of getting paid, on time, by your customers – and therefore reducing your risk of bad debt. This can obviously involve some “difficult conversations”.

I’ve been through two (or three) recessions or similar over the years and have spent a significant part of my career working in businesses that needed turning around. Also, for the last 14 years, I’ve been working with business owners, helping to improve their cash position. So I’m offering my insights in the hope that my experience and know-how could be helpful to you.

But I don’t want to lose my clients’ business. Chasing to be paid may hurt my relationship with them and my business will suffer…” This is a common theme I hear from business owners. But getting paid on time is not mutually exclusive to building a really strong relationship with really good customers – it’s good, common, business practice.

You always need to have a robust process and the discipline to follow it, to keep on top of debt collection – in “normal” trading circumstances (whatever normal is, and whenever we get back to it) and even more so in these unique times.

These key tips will help put you in the best position to get paid on time:

  1. Carry out credit checks on your customers before you sell to them. It doesn’t help in times of crash, but in normal life this gives you the first opportunity to not give credit, or to change your terms and reduce your business risk.
  2. Make chasing money owed to you the first job of the day, every day. Effective credit control is all about having an effective process – and the discipline to follow it. The business owner needs to demonstrate the leadership in this by making it an equal priority to selling.
  3. Have one person with responsibility for systematically calling all your customers every day and getting confirmation of payment dates. But also make it everyone’s job to get paid by your customers – including your sales team!
  4. Call customers 10 days after sending them an invoice, even if your terms are 30 days. It’s a ‘customer care call’ rather than a chasing call, but it means you can sort the two reasons that account for 90% of late payments and still get paid on time – the customer needs a copy of the invoice or has a query.
  5. Get a daily (preferably) or weekly (at least) update on who owes you money, what promises of payment have been made and, more importantly, what promises have been missed – and escalate the latter.
  6. Send statements every two weeks. Recognise that many larger companies need these in order to make a payment to you – and won’t pay unless they have this AND receive a call from you.
  7. Don’t be afraid to push to get paid. If the customer’s mobile phone still works, they’ve got cash somewhere – it’s just not coming to you, because you aren’t at the top of the list.
  8. Resort to “normal recourse” and escalate collection. No-one wants to go legal, but you need to protect yourself and follow the normal process to make sure you do get prioritised. Remember, this isn’t your fault – it’s your customer’s choices that are leading you to escalate.
  9. Sometimes it’s the right thing to do to agree a payment plan. Never accept a monthly payment – always convert the monthly payment to weekly payments. The smaller amount means it’s more likely to get paid (it’s more manageable for your customer) and, more importantly, it reduces your risk (you know every 7 days whether the cash has run out or not, rather than 30 days too late).
  10. Never let the debt get bigger. If someone hasn’t paid you, don’t give them any more on account – you’re not helping them and you’re just taking on more risk. All new customer purchases have to be paid for upfront, in addition to paying off the established debt.
  11. Don’t give up, don’t leave it and keep asking to get paid. It’s your right to do so! Don’t get caught up in the emotion, and don’t let your customers make this your fault and your problem – because it isn’t. There’s a difference between being sympathetic and being a pushover or a “rescuer”. Their cashflow problems aren’t your problem, unless you let them be. Be firm, be polite, be clear and follow through.

And just in case you still have any doubts, it is never okay to buy services and goods and not pay for them – that’s called stealing!

This is my personal belief system. I hope it helps you too. Sometimes we remind our business owner clients of this when their customers aren’t paying them and they’re fretting about how to have those ‘tricky’ conversations – we find it helps them get some perspective on the issue.

You can also read our blog “Cash is King” for additional cash priorities you should be considering.

I hope these quick thoughts have given you some ideas… and maybe some comfort. You can always contact me on LinkedIn if you want to talk.

With love
Jen x

Jennifer Raines, YRH Founder

Jennifer Raines, YRH Founder

We’re passionate about doing what we can to help you get through these challenging times and build towards a better, stronger future. Visit our SME Resource Centre – where we aim to provide the latest updates and information on Coronavirus and your business.