Very few organisations operate on a strictly cash basis when it comes to their income and expenditures. It's a fact of life in the Western world that many people and organisations expect to be extended credit, when it comes to the purchase of products or services. This poses some potential problems for any small business owner, as it is always a risk that people will not pay their obligations, leaving you with cash flow issues of your own and additional headaches. What should you bear in mind as you put in place systems to help you deal with this risk?
When Debt Collection Is a Fact of Life
The phrase "debt collection" is often considered to be negative and something that business owners need to consider as a last resort. Yet, debt collection begins as soon as any service or product is provided on credit. It needs to be considered as an essential part of the process and something that is catered for on a daily basis. Of course, this all starts with a careful assessment of what you're dealing with and how much credit you're extending. Never allow any confusion in this matter and be very clear in both conversations and in documentation to stress exactly what the terms and conditions related to payment are.
Why the Inaction?
It's easy to get caught up in the thrill of the sale and assume that everything will be okay when it comes to collection. Furthermore, it's not always easy to discuss what may happen in terms of default, as some people seem to think this could sour any relationship with a prospect or customer.
What's at Risk?
The downside when it comes to any lack of clarity is considerable. As time goes by, it can cost quite a bit of money to recover any debt, in relation to formal collection charges and bank fees. Also, cash flow can be impacted which could have a knock-on effect in terms of creating difficulties for yourself in terms of paying your own debts.
Remember to set up your accounts receivable system so that it is triggered immediately when any deadlines are not met. You should also train your staff so that they are ready and fully equipped to deal with the process of collection and you should try and take any emotions out of the picture whenever possible.
Taking Matters Further
Never be half-hearted after you have set up a payment collection system. Some people will send out an initial email, but may then just sit back and wait. They may not be clear in case they risk offending. It's absolutely necessary to adhere to deadlines and escalate any action if necessary. Sometimes it will be necessary to get additional help when trying to collect money due. It's a good idea to have a relationship with a debt collection agency to augment your efforts, or to push for settlement as needed.
For more information, contact a local professional.