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or . . . Prevention is better than Cure!

Many people think that collecting sales accounts starts when they become overdue.

To too many, collection activity starts only when they are desperate for money, because of the widely-held notion that asking customers to pay will drive them away.  Of course, it is possible to give offense in the way you ask for payment but, even more, it is possible to enhance your professional standing with your customer if you are professional in the way you go about it.

Here are some basic guidelines.
1.  All new customers should sign a Credit Account Application Form.  The signatory should be ‘a duly authorised person’ and should sign below a statement which involves explicit acceptance of your Terms, with particular reference to prompt payment.  Any prospective customer who refuses to sign such an undertaking is giving early warning of his intention to steal extra credit - or maybe not pay at all!

2.  Check out the new customer with a reputable Credit Reference Agency - and put your larger customers on ‘credit watch’ so that any abnormal happening can be notified to you at the earliest point, possibly avoiding a bad debt.  If an actual or potential problem situation arises, talk to your customer about how it affects your trading relationship.

3.  Every priced document (e.g., price lists, quotations, etc.) should contain a direct reference to ‘prices subject to payment within our Terms’.

4.  Every conversation about a job or contract should include direct reference to prompt payment and the purchaser’s actual agreement (as distinct from assumed agreement) should be obtained.  At this point you may be involved in negotiations about the length of credit provided and any deviation from your standard Terms should be confirmed in writing before the contract is performed.

5.  Avoid being subjected to the buyers Terms as printed on any written order, by sending an Order Acceptance ‘subject to your Terms of Sale’.  The last document that changes hands before performance of the contract becomes the contract document.

6.  If you are sending out a large invoice (NB large to you or to your customer) telephone them shortly afterwards to confirm receipt and acceptance of the invoice.  If there are problems, you will surface them early.  If there are no problems you can confirm that they are aware of the payment date and intend to honour their agreement with you.

7.  Telephone such customers shortly before the payment is due and confirm again that it is being processed.

8.  If a query or dispute is raised, deal with it promptly and ensure that the customer accepts your response.  Until he does, the query remains a potential block to payment.

9.  If an account does go overdue, ring the customer immediately.  ‘We can’t trace your payment, can you confirm it has been sent’ is less confrontational than ‘your account is overdue’ but still requires a specific answer.

10.  If your best efforts to obtain payment produce no results (and two broken promises to pay is a good indicator) consider what you need to do to protect your investment in that contract.  Keep in context the fear of upsetting your defaulting customer.

  • He agreed to pay you at a given point.
  • You have done the work to specification, so you have done your part
  • He now must do his, and pay you.
  • If you have a 10% net profit margin, every month’s stolen credit carves off a tenth of that profit, with NO benefit to you.
Some more thoughts . . .
Consider the ultimate consequence of not acting to protect your business for fear of losing your customers’ goodwill.  You could lose your own business - and their goodwill will be worth nothing!

Consider your own reactions when suppliers chase you for overdue accounts.  If they are rude or offensive you might seek to take your business elsewhere but, if their approach is at all professional, your main reaction may well be ‘how the devil am I going to pay that!’

Consider your reaction to a supplier who’s accounts are shambolic!  He probably causes you more trouble than he is worth, simply trying to keep track of what you do owe him!  Don’t be that supplier to your customers - you are far more likely to lose them through inefficiency than through professional credit control.

Don’t be afraid of chasing large customers!
The people you speak to in bought ledger (or Receivables) departments are light years removed from the buyers and their paths rarely cross.  The bought ledger manager has to juggle his available cash across numbers of suppliers and the more professional ones get paid first.  If the bought ledger people don't process your payments promptly, ask your friendly buyer to have a word.  He (or she) can work wonders!  If paying you promptly means that someone else has to wait - well, it is a highly competitive business, chasing money!

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