Money stress started undoing a new coaching client of mine. She'd hired me to grow her business. But when pressed on the source of her stress, she conceded that it had "nothing to do with growing the business." The issue was collecting receivables from clients who were falling behind.
"Nothing to do with business growth"?
On the contrary, poor collections have everything to do with growth.
I asked whether she had called her clients to determine the cause of the delays. She told me that, as the owner, she did not make collection calls--her bookkeeper was handling it.
Again, that kind of thinking can lead to trouble. Bringing in outstanding balances is more than a clerical detail; it's an owner's responsibility. Make it a priority. Especially in today's challenging economy, growing businesses need an infrastructure--from bottom to top (and that means you)--that supports a timely collections process.
Here are seven powerful questions to ask yourself about your collections, no matter the size of your business:
1. Do you suffer from sales sugar coma? Are you so excited or--in this economy--so relieved to make a sale that you happily numb out instead of establishing the payment parameters?
Agree upfront--before you begin work--on how and when you'll get paid. Some clients think 75 days is a perfectly acceptable time period in which to pay vendors. Safer for you may be 30 to 60 days or fewer. Longer periods can be risky should a client start experiencing cash-flow problems.
2. Are you a casualty of your client's casualness? Be wary of clients who seem unwilling to work out a clear billing and collection agreement upfront. It could indicate instability, casualness toward paying for your services or, worse, unscrupulous business practices.
Designing a payment schedule is as important as closing the sale. Be proactive. Make a clear payment agreement upfront with customers whose late payment could put you at risk.
3. If a payment problem occurs, do you play the drama queen or have a conversation? Reach out--don't sic the attack dogs on your client. Make a friendly call or send an e-mail. Clients can make simple mistakes that are easily rectified if brought to their attention. Other times, there may be real problems.
Until you check it out, you can't be part of the solution, only a victim of the outcome. Don't fear the facts--it's what you don't know that can put your company at risk.
4. Are you removed from the collections cycle? If you have employees dedicated to billing and collections, restructure your role in the collections process--don't give it up entirely.
As an owner, you're in a unique position to resolve outstanding collection issues your bookkeeper can't. Have your bookkeeping department defer to you should a payment issue require escalation. Owners have implied permission to talk to a higher-level decision-maker and address a delay more powerfully.
5. Do you accept promises or require action? Just because a client promises to pay doesn't mean the money will arrive. If that promise isn't backed up with a check number and an arrival date, you may find yourself with more hope than income when all is said and done.
Consider investing in efficiency. Providing your FedEx account number to a tardy out-of-town client can expedite an overdue payment and underscore the importance you place on prompt payment. The peace of mind you'll have--and quicker access to your money--is well worth the investment.
6. Do you view credit as an investment or a cost? Many times business owners don't want to accept credit cards because of the processing fees incurred. What they fail to calculate is the cost of time spent pursuing payment by check. Setting up an authorization agreement and an automatic credit-card billing process more than pays for itself in time, money and worry.
Many customers prefer paying by credit card. When doing business with your firm they can earn points and premiums for using the card. Plus, billing by pre-authorized credit card is automatic and usually drama-free.
7. Can you do business with your own "carrots and sticks"? Some clients who want additional work or product may hold back an outstanding payment until they obtain more product or services.
Turn that around with your own "carrot and stick" approach--make timely payment a prerequisite for what you offer. It's up to you to set the tone and establish the agreements. Make your commitment to timely payment obvious and measurable to your clients.
Collections are among the keys to business survival and growth. Not every client will present a collection issue. But when it happens, don't let that client compromise your business. Timely cash flow through proper collections will give you the undistracted freedom to invest your time and energy on growing your business.