It seems to me that it is often the easy things we miss in business. The actions you take as a given, or expect someone else to be handling, are very often the ones that get missed.
This is never more so than in debt collection! As we all know poor credit control is a recipe for disaster for businesses of all sizes and shapes; if it is ignored, or allowed to slip, it is guaranteed to lead to severe cash flow problems for even the best capitalised organisations.
Please forgive me if I am teaching lots of people to suck eggs here, but the following basic strategy has worked exceptionally well for me in many businesses.
The great thing is that it doesn’t cost anything and is guaranteed to create more working capital for your business!
The 6 headings to remember to create great cash flow are as follows:
- Bargaining – for great terms
- Accuracy – make sure every invoice is correct
- Relationship – know the person who is making the payment
- Targets – have a collections target
- Everyone – is a credit controller
- Refresh – your credit control strategy
Giving us the acronym of BARTER.
Remember, you have to BARTER to get great cash flow
1. Bargaining
When the sale is being concluded, make sure that the payment terms are very near the top of the list of your bargaining tools. BARTER with your customer – exchange some extra benefits for prompt payment. For example;
“Yes you can have delivery in 2 weeks but we must be paid on the dot 30 days after that to enable us to give you that service”.
OR
“Yes I can give you 5% discount but we will need to paid strictly in 14 days from date of delivery”.
2. Accuracy
Are your invoices going out on time, to the right person/department? Do they have all the necessary information and contact details?
Have you charged the right price?
Have you included everything chargeable?
If you have given a discount, have you made clear the reason for this? For example a settlement discount may only be taken if paid by a set date!
3. Relationship
Build a relationship right at the beginning with the key people who will be authorising and then physically making your payments. Look after them, stay in contact, and tell them how much you appreciate what they do for you; buy them some chocolates at Christmas or whatever you feel is appropriate. Remember they hold the keys to your cash flow, and it’s nice to be appreciated.
4. Targets
Give your credit control team a target for collections each month. Write it on a board in their office or near their work area, and get them to update the board every day. If appropriate give them a bonus or treat them to a meal or a night at the pub for achieving the target.
5. Everyone is a collector
Make sure that everyone in your business is aware of the importance of securing payments from customers. For example, payment could form part of a salesperson’s target, against which they are paid a bonus. Make sure Service desk personnel are aware of customers with outstanding accounts.
6. Refresh
Remember that this will not all just happen. It is not a function that can be set up and left. It needs to be constantly refreshed and updated by all concerned – communication is key.
Summary
Credit control has to be at the top of the list when it comes to business functions and priorities. Without an effective cash flow it’s impossible to trade effectively however good your product or service is.
Everyone it seems is struggling for cash, and as we all know it is very difficult to get funding from the banks!
Take the BARTER steps to make sure its not your business providing your customer with the cash flow that means they survive and you don’t!
As always, if you have any comments or any of your own experience you would like to share on this subject, please contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.