Getting Your Collections on Time

Sam Walton, the founder and owner of Walmart, was once asked how he became so successful.  He responded that to be successful you must collect on every single invoice that you send.  Otherwise, you are losing money and financing your customer’s business.

There are several clues that you should pay attention to when your collections are not being paid on time or even late:

Sudden change in payments.  If a customer, whom you have had for years and who always pays on time, suddenly stops paying on schedule, it could mean an early indicator of financial problem. Sudden partial payments from a customer who used to pay the full amount may also point to a problem.  He may even avoid your phone calls or ignore your emails is another red flag.

New dispute over old invoices. A customer who suddenly complains about quality issues with goods or services received or performed a while ago could be another early warning sign.  They may complain about the quantity delivered or the order was not delivered on time.

Broken promises of payment. When  customers are contacted about the late payments or not being paid at all, they my offer many excuses, like “The check is in the mail,” “The accounts payable clerk is on vacation,”or “We forgot to mail it.”  These empty excuses are indicative of a cash crunch.

When a check bounces.  If you have a relationship with a customer whom you both need you may relax your acceptance of promises with him.  But when a check bounces, and you need that money to run your operation, it is no forgiven acceptance.  Will you continue to accept checks from that customer?  You will have to do business on a cash only basis.

Change in the size of the order.  If a customer orders an unusually large order not in line with its normal order size, it could mean that he is stocking up on you because he cannot get credit.  Or, it could be a smaller than usual order meaning that the customer does not have to funds to pay.

What should you do as a business owner in the event one of the warning signs comes to fruition?  Well, certainly you should be in close contact with your customers.  Keep that good relationship going.  If a customer who has a good business dealing with you suddenly has a situation which is temporary, you want to have that open dialogue to let them know you are aware of the situation.

If you start to see that your bills due within 30 days of receipt are slowing up, don’t wait to call the customer.  Do it on the 31st day.  Remember: The older an invoice gets, the harder it is to collect.

Good business practice is that you should collect the customers banking information and credit card information at the start of a business relationship.  Having a written contract with him reaffirms that there is a business relationship.  Develop a policy with your accounts receivable people to determine when past due collections should go to a collection agency.




Need Help in Your Business?

For many small businesses taking on full-time employees is prohibitive.  They do not have the cash flow to employ them.  But, owners of small businesses may need help with projects that they cannot do themselves or do not have the employees with the requisite skills. They need help in designing a website, for example, or have someone go out and investigate museums for designs of a certain era, or create a marketing brochure for their clients.  Whatever it may be,  engaging freelancers may be the answer.

Freelancers are not full-timers and aren’t direct reports.  A company must rely on their expertise and word that they will get the job done in the time that is specified.  A company cannot control or direct their work since they are 1099 independent contractors.  Therefore, a company must be careful in hiring the right people.  Ask for references and check on them.  A desirable freelancer is one who is experienced and has done a large number of jobs. You might test them on a small job first to see how they do.

Here are some pointers to remember when considering a freelancer:

  • Be very specific on the scope of the job and ask them if they have everything they need before they begin the project.
  • Establish checkpoints along the way, but do not dictate how they perform the work or the hours they work.  If you do, it becomes an employee/employer relationship and violates the definition of an independent contractor.
  • Freelancers should also have a written, signed independent contractor’s agreement laying out the relationship.  If you want ownership of any of the work or material the freelancer created that must be spelled out in the agreement that you are buying the rights and own all the rights.

A good freelancer can be a great help to you, but they come with a price so pay them promptly.  They will hold you in good regard.