Mark Hegarty: Tight collection policy means your business will get paid on time
Do you actively manage your business cash flow or does the lack of cash govern the way you manage your business?
A tighter credit control system can help a business to identify potential bad debts and take appropriate steps to reduce them, and ultimately get paid on time.
Follow these tips to ensure prompt payment for your business.
1.Set up of your cash management:
- Decide which customers will receive credit – credit is not an automatic entitlement.
- Credit-check potential new customers, agree terms of service.
- Set a credit limit for each customer.
- Use fully documented terms of service which specify credit terms
- Provide a quote in advance of doing any work and ensure your system can convert a quote to invoice easily.
- Ask for a deposit or part payment in advance.
- Consider including a provision to allow you to charge interest on Late Payment.
- Have procedures to deal with disputes.
- Specify the most appropriate payment method.
- Agree the payment terms in writing and include on invoices.
- Send invoices promptly.
- Email rather than post invoices.
- Follow up invoices before their due date, check:
Has the customer received the invoice?
- Are there any disputes, queries or issues.
- How will payment be made:
- Start an automatic reminder procedure to flag invoices that are due.
- Phone is best to chase up payment.
3.Set a Collection Policy
- Where clients breach of credit terms, consider a stop list. Inform both the client and employees that they are on the list.
- Chase overdue payments within a week of them being due.
- Prioritise your collection activity and chase the highest values first.
- Levy a charge for “bounced cheques/direct debits”.
- Use a set policy for further chasing, for example, standard letters, emails, calls, faxes, visits referring to Solicitors or a Debt Collection Agency.
Getting paid on time is about routine and systems.
Mark Hegarty is founder of eFolioAccounts.com, an online accounting software system using cloud based technology.