Taking payments and collections is a major part of many business models, and many business owners aren't doing it correctly -- because, for most, it's their least favorite part of the business. No one wants to chase down payments. No one wants to make those phone calls and have tough conversations with clients. They would much rather be out there working on the business and scaling their growth.
But turning a blind eye to collections will not only limit your ability to grow but can often make it almost impossible to pay your own bills on time and keep in good standing with your vendors and employees. Which makes it almost impossible for you to do the things that you know are best for your business and your team.
So today I wanted to share a few simple things that you can do to stay on top of your collections and get paid faster, with less drama.
Break It Up Into More Manageable Pieces
A client owes you $10,000 and is 30 days late on their payment. What do you do? Do you a) continue to invoice them for the full amount? Or b) offer to take a smaller amount every week until the debt has been paid off in full? If you are like most businesses, you chose option a). It's easier, and you only have to think about it once a month when the payment comes due. But the traditional way of asking for the full amount may be doing you more harm than good, especially if you are trying to keep your cash flow moving. Because for most business owners, getting a little bit every week is preferable to getting absolutely nothing. The key is to get creative and offer up alternatives to your clients to get paid faster.
I always suggest that in a collections scenario your best bet is to at least get your cost of goods covered. So let's say that it costs you $2,000 to service that client and provide the services that they are delinquent in paying. A payment of $2,500 would cover your costs and allow you to continue to do business while you wait for the remainder to come in. Now, I would be very careful about extending them credit and providing additional services at this point, but at least your costs are covered.
Review Your Numbers Often
Another mistake I see a lot is waiting too long to review your collections. If your client is 60 or 90 days past due, it is already too late. I have seen far too many business owners initially ignore their financial pillar and suffer long term cash flow issues because of it. A better way is to review your financials often and make sure that your accountant, bookkeeper, or controller closes out your month by no later than the 20th of the following month. There is no reason to wait any longer than that.
If you stay on top of your accounts and get creative with your payment plans, you should have a much easier time keeping on top of your own bills and meeting your business financial goals.