Entrepreneurs do it all. Among the many “hats” they wear are sales and marketing, production, operations and finance. Because sales drive growth, most entrepreneurs devote most of their time there. Next come the production – actually delivering on the product or service you have sold, followed by day-to-day operations. Finance, especially the management of accounts receivable comes last.
Sadly, ignoring accounts receivables can really your business. If you do not manage your accounts receivables, they can easily get out of control. All the sales in the world mean nothing if you are not actually getting paid.
The good news is that you can reduce your risk of not getting paid.
The first step is to gather as much information as you can on a new customer. We get so excited at the prospect of new business that we often forget to obtain even basic information. I once worked with a small contractor who did $5,000 work for a man, but had no information other than his first name and cell number.
Next, if you are going to extend credit, you need a customer contract. Detail terms of how you expect to be paid. Make sure customer signs. The contract has to be executed before you begin any new business relationship. A contract does not have to be complex – even a simple email sent to a customer, as long as they email back their agreement, will work. Your contract should also detail what will happen if you are not paid on time. Here is where you make it clear that you will charge interest or a late fee on past due balances, and also ask customers to agree that they will be responsible for any costs associated with collection.
Bill customers promptly and regularly. Make sure your bills are readable and provide information on how to make payment. Again, so many people get this simple step wrong.
Stay on top of your overdue accounts. Review weekly, and come up with a process to contact people who are late paying you. Draft a concise but effective letter that makes it clear you want to be paid, and send it along with your bill. A well-crafted collection letter is a tool you will use again and again. Get on the phone and speak with customers. The trick will be to remain consistent with the management of your receivables. If you commit to it, the results will make it worthwhile.