We have all been reading about or watching the current financial reports on the state of the economy and it is clear that the general consensus is that it is going to get worse before it gets better. We have already seen more and more businesses permanently close their doors due to poor cash flow. The good news is that you don’t have to be one of them! By implementing a simple two-step business practice, you can maintain a current receivables report and reduce your bad debt write-offs. It is time to stop being cash poor and start being cash rich.
Right now you’re probably facing the same age-old dilemma: you’ve made the sale or provided the service but now you cannot collect on it. The first step in ensuring that you collect on your receivables is to implement and commit to a strict credit policy. Make sure your client is credit worthy before extending credit to them. This can be accomplished several ways. By far, the most simple and inexpensive way would be to have all clients sign and agree to standard credit terms. It’s your credit application, so go ahead and require whatever important information you feel you need in order to make a decision to extend credit.
It’s also a valuable practice to check any trade references provided by your client. Getting an insight into their payment history will be very beneficial in helping to make your credit decisions of whether to approve or decline a line of credit.
Another means of verifying your client’s credit worthiness would be to utilize an online business credit reporting agency. Just like individuals, most businesses will have a credit report. The most popular service like this is by far Dun and Bradstreet (D&B, www.dunandbradstreet.com). For a fee, you can have access to your client’s real-time credit report and be in a much better position to make credit decisions. These services also provide real-time changes via email on your client’s financial status, which will enable you to make decisions on whether or not to keep their line of credit open.
However, sometimes despite your excellent up front efforts you may still encounter difficulties collecting on your receivables. This leads us to the second step in ensuring collections. At this point, take your queue from the collection agencies and start implementing a call plan to your clients. Staying in front of your clients is not only a good sales tactic but it is also a good accounting tactic. Remember to be friendly and courteous when you call your clients for payment status so as not to damage your business relationship. It is also a good idea to make friendly reminder calls several days before an account becomes delinquent. Being proactive as opposed to reactionary is the best way to decrease past-due receivables and bad debt write-offs.
Now that you have the tools to ensure collections on your receivables, lets face it, it’s time you stop working for your receivables and start making your receivables work for you! The sooner you collect, you sooner you can fulfill your business obligations and generate even more sales. The important point to remember is that the key to business survival in today’s economy is staying afloat and being cash rich.
Stacey Timothy is the Accounting Manager at ShuBee, handling all of the company’s bookkeeping and accounting business.