Calm and collected? Getting your money in full and on time.

Declan Flood, aka The Credit Coach, on credit control and the importance of collecting all the money you are owed in full and on time.

The reality is that you need a simple collection process in your business to make this happen. If you have followed the advice given on Credit Terms in the last edition, that is a great starting point. Now you and your customers know exactly when payment should be made, so the next stage is to make sure that happens.

Allocating responsibility

The first requirement is that you have at least one person in your business that is responsible for the collection of monies due. Making statements like ‘everyone is responsible’ will mean that no one is responsible! Of course, I would say they should be trained and professional, but the most important thing here is that they enjoy the job of collecting and are allowed sufficient time to follow up and make the calls. This is where most hardware businesses fall down. You should have a few weekly and monthly reports that are reviewed by senior management, with a view to supporting the credit controller and providing the required resources.

There are a million reports that could be generated, my style is to keep it simple, so a measure like – how much extra should be in my bank account, if all customers were paying to terms – is a great place to start; I have a simple spreadsheet that will calculate this number for you and I am happy to send it to you, simply email me on declan@thecreditcoach.ie with the words ‘How much extra should be in my bank account?’ and I’ll attach it and send it back to you. This is a great way to monitor progress over time. It will also help you to set cash collection targets, which really should be done every month.

Ten crucial steps

• In addition to the above, I recommend the following collection steps:
• Make sure the payment due date is clear on your invoices and statements;
• Automate payment receipts as much as you can, setting up direct debits and accepting credit card payments can really help;
• For your larger customers, contact them around a week before the due date, to make sure everything is in order and payment will be made as agreed;
• Start following up on unpaid balances on the first working day of every month, whether you choose the phone, emails or text messaging is up to you, but you should have some system for sending out reminders;
• A clear step-by-step approach for all your customers must be documented, agreed and implemented;
• As well as focusing on the higher balances, you need to develop your action plan to deal with high-risk accounts at an earlier stage;
• Follow up on broken promises quickly; failure to do this will send out a signal that getting paid isn’t really important to you, and, if that happens, you will be put on the bottom of their priority list;
• Have a clear rule, based on each customer, when you have to stop future orders on credit until payment is received;
• Set out when you will pass a debt to a third party for collection, if promises are constantly made and broken; and,
• Ask for help. There is so much help available to you and all you have to do is ask. At this stage, you know I am happy to point you in the right direction if there is anything you need to know.

Declan Flood: “You should have a few weekly and monthly reports that are reviewed by senior management”

This Business Support article featured in the May/June 2016 edition of The Hardware Journal.