Posted on Jun 26, 2015

Collection$ – Dialing for Dollar$

Part 2 of 2

Every business has 2 or 3 suppliers that they’ll pay lickity-split.

They do this so when they want to open an account someplace else, they’ll be able to use these suppliers as trade references.

The lucky ones receiving this accelerated payment plan typically provide a product or service that is key to the business cutting the cheques.  Wouldn’t life be grand if every one of your customers saw your business that way?

We know that isn’t reality.

We know you’re going to have accounts that have you on a decelerated payment plan.  So, here’s a variety of strategies to help you get some of these more stubborn amounts collected.

1.  Negotiate a payment plan:   If your customer can’t afford to pay 100% all at once, accept a series of post-dated cheques instead.  Receiving instalment payments is way better than receiving no payments!  Not to mention….most of their other suppliers probably aren’t willing to negotiate.  This puts you in a more favourable light that may result in you getting paid before anybody else.

2.  C.O.D. only….with a twist:  When a customer has a past due balance owing but still wants to buy from you….what do you do?  Turn down their money?  NO WAY!!!  Here’s a suggestion.  Sell to them on a COD basis….with a twist!  When they make a COD purchase from you, have them add an additional 10% for example.  Apply this additional 10% to the past due amount sitting in your Accounts Receivable.  Do this each time they purchase and the old amount will get cleared up.

3.  Do a contra:  Does your customer offer any goods or services that your business could use?  If so, use them!  When you get the bill, do what’s called a contra.  A contra payment happens when somebody owes you money and you also owe them money.  The two amounts are applied against each other….the end result, the lower of the two amounts is zeroed out and what’s left is paid in full by the other.

For example….let’s say your delivery vehicle is in need of some new tires.  You have a customer, an auto repair shop, with a past due amount owing of $500.  Order the tires you need from this customer.  When they bill you $800 for the tires, deduct the $500 they owe you from the $800 you owe them, this will leave you with a balance owing of $300 instead of $800.

4.  Use credit limits:  Credit cards come with a credit limit, a line of credit has a credit limit….why can’t customer accounts have a credit limit?  Any account that can’t handle paying off a large amount shouldn’t be allowed to owe a large amount.  If you have any such accounts, assign a credit limit and stick to it.

5.  Use a collection agency:  When you’ve exhausted all avenues, consider hiring a collection agency.  Yes, they’ll keep a portion of the funds they collect but, once again, some bucks are better than no bucks.  By the way….sometimes just the threat of putting an account in for collections is enough to get some customers to cut a cheque.

6.  Past due notices:  Consider drafting some past due collection letters.  I suggest a couple of different variations….a gentle reminder type letter, a not so gentle reminder, and not at all gentle reminder!   These letters could be mailed/emailed/faxed/ or hand delivered to your past due accounts.  Include copies of all past due invoices so they can’t say they don’t have them.  The letters should be polite but firm, and of course professional.  We’ve put some templates on the website….feel free to use them.  A word of caution….if you receive backlash from your customers, listen to what they tell you.  This may not be right for you and your customers.

7.  Issue Statements:  A statement of account is a summary of amounts owing on a customer account as of a specified date….they’re a reminder of money owing to you.  They’re typically issued at the end of each month to all accounts with a balance owing.  Once your customer receives their statement they’ll compare the invoices and amounts listed on the statement to the invoices and amounts they have on file.  Any discrepancies are hi-lighted allowing plenty of time to get any issues resolved before an amount becomes past due.

8.  Does your customer still have your merchandise on their shelf?   If so, offer to take it back and issue credit.  Certainly not the ideal scenario but it’s better than nothing!

If you have some other creative ideas, drop us a line so we can share them with everybody else!

Happy Collections=A HappyBoss