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.




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