Debt Recovery for small businesses
07 February 2008
Debt Recovery for small businesses
Cash flow is vital to the success of any enterprise but none more so than the small business. A recent survey by the Asset Based Finance Association revealed that getting paid by their customers was the number one financial challenge for SME’s, with nearly 50% finding it difficult to achieve payment inside their credit terms.
There are things a small business can do to help itself though and the following is an overview of the main points.
- Remember that a sale has no value unless you are actually paid. It is tempting for small businesses, particularly start-ups to be entirely focused on the front end sale and neglect the back office functions.
- Ensure you have your terms and conditions, including a clear set of payment terms incorporated into each contract. This must be communicated to the customer before the sale is agreed, not simply printed on the reverse of the delivery notes or invoices. By then it is too late to be effective.
- Be clear about who you are dealing with. Again, it can be tempting when trying to achieve sales to rush to the point of agreeing the supply, but do you know who your customer is? Is it a company, partnership, sole trader?
- Credit check them before deciding whether you want them as a customer. Don’t be so grateful for the business that you literally end up giving it away. The information on the full identity of the customer is vital to this process.
- Implement a process for invoicing, sending statements and escalating unpaid accounts promptly. Time after time it has been shown that the older an account, the less likely it is to be paid. Set time limits for payment and stick to them.
- Keep on top of your credit terms. It is tempting for small businesses to shy away from pressing for payment, particularly if they deal with far larger companies and David does not want to upset Goliath. Fear not – Goliath knows the game.
- If you do have customers who simply refuse to pay to the terms you want, consider your position. Do you want that customer? If so, can you accommodate the inevitable payment delays? Do you need to work the impact on your cash flow into your pricing? Could you offer a prompt payment discount?
- Interest and late payment compensation may also be claimed, particularly if the customer is another business. This can help offset the very real cost of late payment and should be provided for in your terms and conditions.
The time invested in managing the accounts receivable will pay dividends and if done properly, should enhance the reputation of the business as professionally managed, not damage customer relationships.
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