Illegal Collections
Taking Charge Of Collections
Under pressure to grow the business, most of us tend to relegate cash flow and strict financial management to the background. That’s a big mistake, and has been the undoing of many a firm. When it comes to a choice between revenues and cash flow, opt for the latter. And keeping collections under control is central to effective cash flow management.
In times of cash flow crisis, small business owners swing towards the other extreme, almost becoming collection agents themselves. But that’s good for neither the people nor the businesses they run.
Collections need not become the monster that they often turn out to be. All it takes is a sensible policy and disciplined practice of the same. Here’s how.
Spell it out. Many collection related disputes arise out of a lack of common understanding of the payment terms among the contracting parties. Make sure that everyone is on the same page, right in your first meeting. Remember to specify:
• Basic remuneration against services
• Add-ons like taxes
• Treatment of out of pocket expenses
• Payment terms including timing and mode
Put it in writing. Once there is verbal agreement, formalize it. But don’t stop at that. Go over the terms carefully with your client, ensuring that you have their approval on all that is written in the contract.
Don’t be shy. If the nature of your business is such that you need to make payouts to vendors to execute an order, ask your clients for some payment upfront. Even if that isn’t the case, check industry practices – if your competitors insist on advance payment, you should do the same.
Keep your house in order. Efficient collections start with your side of the contract. Make sure that your invoices are accurate and in keeping with agreed terms. An invoice with errors is just the excuse the client needs to delay your payments.
Most businesses use billing software to manage their invoicing requirements. Check out the capabilities of any software before you buy it. Does it help you track customer balances, for example? Also ensure that it is flexible enough to support your business’ growth.
Do it on time. Any delay in invoicing will show your client that you don’t care enough about collections, and they will take full advantage of that. Also, you must give the other party adequate time to arrange payment. Thus, timely invoicing is a must.
Offer sops or the opposite! Sometimes it may be worthwhile to offer a discount for more favourable payment terms. Conversely, insert a clause in your contract about a late payment penalty. However, be prepared that clients will happily hold you to the discounted price but will rarely pay the late charges.
Follow up. Keep track of the delinquents. Some clients are just genetically late paymasters. Ensure that your system alerts you to problem clients, so that you can take pro-active measures.
Don’t DIY! That’s our most important advice to you. As the business head, you need to maintain and nurture relationships, and haranguing clients for your dues won’t help that cause. Appoint a collections manager or assign the responsibility to your accounting staff. That way, you can distance yourself from the act of following up, while ensuring that it still happens.
Efficient collections management is an important lifeline for any business. Unfortunately, many companies realize that only when they need to resort to some pretty serious damage control. For any business, it is vital to institute a strong collections discipline right from the beginning.
