Thursday, 16 October 2014

Collecting Your Cash

I recently mentioned that businesses fail because cash going out exceeds cash coming in.

With the best will in the world, there are buyers who just don’t pay on time (despite agreeing to, say, a 60 day credit period).  If your buyer is a “big player” in the market and can pretty much pay when they like, you may have little choice.  You can still, however, have a robust “Collections” process to ensure that you get paid.  

Apart from the advantage of knowing when a buyer is likely to pay, a good collections process (the process of tracking, following up on and collecting payments owed) shows your lenders and debtors that you are in control.

A good collections process means you:
  • Know your buyer;
  • Know how your buyer pays;
  • Have an accurate tracking system for invoices outstanding;
  • Have a process for actioning invoices outstanding after a set number of days “overdue”;
  • Know how, when and to whom to “escalate” a problem;
  • Know when to hold, fold, walk away or run.
Know your buyer:
There are people who go into a deal because it’s a “good one”, even if they don’t know whom they're dealing with.  Shaking hands at a trade fair doesn’t count.  There are a lot of people who make their money by tricking others.  Do your research (internet, other people who use the same counterparty, etc).

Know how your buyer pays:
How does your buyer deal with your invoice?  See my article on this.

Have an accurate tracking system for invoices outstanding:
How many invoices are outstanding at any one time?  How many are outstanding on the same buyer?  Have the buyers actually received them?  Are there any questions or disputes?  When are payments due?  Which are the “high value” ones (which may need more focus)?  How many are “past due” by 30 days, 60 days, 90 days +?  

Have a process for actioning invoices outstanding after a set number of days “overdue”:
The sooner you take action after an invoice goes “past due”, the higher your chances of recovering the money.  Do you call the buyer on day 30, day 60, etc?  Do you keep notes of date, time, to whom you spoke, what was said, what was agreed?  Is the buyer experiencing their own temporary cash flow problem because one of their buyers is delaying?  All this helps when/if you have to take more drastic action to recover a debt.

Know how, when and to whom to “escalate” a problem:
Depending on who’s doing the chasing, there comes a time when a junior member of staff can’t handle the case and needs to pass it on to a more experienced colleague (or even the business owner) so they can get back to collecting the “easier” payments.  Equally, more senior people on the buyer’s side may also need to become involved, depending on the nature of the case.  “Escalation” may also mean passing the case to a debt collection agency, taking it to court or other more drastic action.

Know when to hold, fold, walk away or run:
The most difficult.  You need to decide whether to:
  • Continue to chase (hold);
  • Try a different tactic (fold);
  • Write off this time because you’ve made good money from them so far and there’s more to come (walk away) or
  • Never deal with them again and let them become someone else’s problem (run). 
Ask yourself: do you want to spend more time chasing a debt that may never be paid, or spend the same time getting new business?  What lessons can you learn from the bad experiences?   Hopefully, these will let you see a bad deal before you do it so you can run. 

In all cases, communication is key.  The more you communicate in a calm and positive way, the higher your chances.  Tempting as it is to threaten and shout, this is the very last resort when all other efforts have failed, and you are prepared to lose the relationship.

I have spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy to offer solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

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