By Action Coach Dave Beam
One of the reasons that people solicit my help as a business coach is to improve their cashflow. If you are in business, you’ve heard it said that cash is king! It’s the gasoline in your tank – if you run out, you are out of business!
There is much that can be done to improve cashflow, but one of the simplest, easiest ways is to effectively manage receivables. The fact is that many businesses do a mediocre job at best managing their receivables. With that being said, I want to give you some practical tips on how to better manage your receivables. These tips will help you only if you decide to use them.
#1 The first “tip”, so to speak, is to make a commitment today to address the issue and make it a top priority. Many business owners and managers avoid this issue, which is a terrible idea. The fact is you are not only hurting your business, you are also hurting your customers by not collecting your money from them in a timely manner. It is your responsibility to be proactive and on top of this issue. If you are not willing to absolutely commit to doing something about this now, the other tips will be of no use. Commit today to addressing this issue head on, and coming out of denial.
#2 Know your numbers in this area. Know how much people owe you, know how much is past due, and know how far past due. I am amazed that many business owners and managers have no real handle on their receivables, and have lost track of what is owed to them. It is very difficult to improve what you do not measure. Not knowing this critical information is inexcusable.
#3 Create and institute a systematic way to address your receivables. Your system should be very aggressive and frequent early in the process. When you communicate with your customers that are not paying you early in the process, you can give them options. Time is still on your side. When you let unpaid invoices go past due beyond 45, 60, and 90 days, it usually becomes more difficult to resolve. Customers sometimes are more reluctant to speak with you because they have let things go as well. It almost always gets worse when you avoid it. If you follow a system of communication that you automatically use based on the number of days past due, then you avoid allowing things to go on for too long.
#4 Institute a great system of communication when you take on a new customer. Let that customer know your terms, and exactly what they can expect if they are late paying an invoice. Always attempt to negotiate agreements where you receive payment quickly, even in advance in some cases. Again, if you are committed to excellent products and service, most people are willing to pay quickly. Only offer extended terms if absolutely necessary and only if it is a win:win. Only extend credit to customers that you feel sure will pay. If you are dealing with a larger organization, find out from the beginning what you can expect in terms of payment so that you can budget accordingly. Depending on your business, you may also want to consider incentives or discounts for early payment. Be proactive and create a friendly and open communication about money. It is much easier to discuss these matters and negotiate a mutually beneficial commitment before there is a problem.
#5 Deal with your head trash and dysfunctional attitudes and fears about collecting money. You would have a problem with someone stealing product from your store, or money from your wallet or cash register. When people refuse to pay their bills on time, it is no different. If you are providing a great product and service, then it is absolutely appropriate and right for you to hold your customer accountable for paying their bills. If payment is late, find out what is going on as soon as possible. Sometimes it is just an administrative issue that can be easily resolved.
The bottom line is that effectively managing your receivables is a key to healthy cashflow. Call me if you would like some further assistance. Happy Monday!
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