For small businesses that extend credit, the timing of the cash inflows can cause some restless nights. But there are ways for any business to improve their cash inflows and gain more confidence in the timing of customer payments.
The first decision you must address is whether to extend credit to the customer, in what amount and for how long. It is acceptable to manage all three of these aspects based upon your history and knowledge of the customer.
The most important step in a solid collection process is to deliver the product or service when the customer wants it, at a fair and agreed to price and of the quality they anticipated. This includes the attitude of your customer contact personnel. Does everyone treat the customer with the same respect that the owner would display? Minimize surprises and if they can’t be avoided, communicate promptly.
The next critical step is accurate and timely billing. I once worked for a waste firm whose sales force could not get their pricing arrangements to the billing function on a timely basis. But they somehow had the time to review every invoice and manually fix the billing prior to mailing. Collections from commercial customers were always troublesome because the billing was unprofessional.
Make sure that all agreements with the customer have been approved and communicated to the billing function before shipment. Inaccurate bills are a sign of sloppiness, can delay payment and often result in requests for credits and corrected invoices. If the customer requires a purchase order number, make sure the PO number is on your invoice.
Get the invoicing to the customer as fast as possible. If the customer wants the invoice entered into their portal, do that promptly. If they will accept a fax or email of the invoice, that will save postage and may gain you days in cash flow. In short, make it easy for your customer to pay your invoice.
Next week this blog will discuss managing the collection function and planning cash receipts.