12 May 2021
DEBT COLLECTION vs CASH COLLECTION
Research proves that a large proportion of the small to medium businesses that go into liquidation or cease to operate do so -not because of a lack of profit or a lack of business- but it is often simply the failure of their clients to pay them, the pressure of cash flow, the inability to collect debt, whatever you like to call it- the fact is the small business community is not collecting the money owed to them.
There are many reasons behind this, and we will attempt in this short post to address a few of them.
The mindset you need to adopt is much like a service station, a motor garage, or a retailer. That is that the product and service you sell has a value. And, if the person is not prepared to commit to pay that value, then you need to withdraw the service or not give them the product.
The Golden rule is if a client does not pay you, they are not a client – they are a cost.
So, the first thing you must have in place with all your clients is terms of trade.
Terms of Trade
This is a formal, written, AND AGREED understanding of how you will receive your payment from your client. It should include the timeframes for payment a methodology for dispute and penalties should they not pay you as due.
The word ‘agreed’ is capitalized for good reason. If you do not tell your clients what your terms of trade are, and they do not agree, you are opening yourself up to a misunderstanding, possible nonpayment and (obviously) future stress.
These terms of trade do not have to be onerous or complicated they are simply an agreement for you to provide services or product and for your clients to pay you as you and they agree or expect.
Most industry associations have general terms of trade available to their members. If you do not have terms of trade, you may ask your accountant, your business coach or ask as us here at ACBE for a general copy that you can adjust accordingly.
To give a simple example, if you fill your car up with petrol the terms of trade for a petrol station, you pay before you leave the station. If you go online to buy a product from Amazon, you pay before they dispatch the product. You are agreeing to these terms of trade without question.
Customer service call (Cash Collection Call)
One of the easiest ways to achieve far better collection of cash is the fabulous customer service call. I call this the ‘Cash Collection Call’.
If you provide service or product to a client, immediately after they have received the service, or you know that the product has been delivered, then a customer service call is a tight way to remind them of your terms of trade.
It is imperative that the reason behind the call is to check that the service was as expected, or that the product arrived and was the quality that they expected. Obviously then the last part of the call is to remind them that you will be expecting payment by whatever date is and thank them very much for their business.
This achieves the result of the client knowing that you care that the product or service met their requirements and finding out from them that they understand when you are expecting to be paid.
And using this with some of my clients it has achieved an amazing result in both an improvement in customer service and a massive improvement in cash collection.
Follow Up to Cash Calls
The most important thing about the customer service call is that you have expressed the terms of trade as an expectation. The next thing that must be done is that, if that the payment is late by 48 hours, the client should be called again.
This is not a debt collection call because the client may have genuinely missed the payment, may have paid it to the wrong bank account, may have authorized it but it has not been done by the Accounts Department, and a myriad of other excuses as to why you have not been paid.
Doing this elicits from your client, a date that you will be paid, an apology and further shows him that you are a professional organization following up what you expect.
Obviously, whichever date they give you with regards payment you will diarize and follow up.
I reiterate that if a client does not pay you, they are not a client they are a cost.
Within your terms of trade, it is imperative that you have a cost and a process by which you follow up monies that you are not paid.
This should include interest, costs on collection, and the process that you will be following.
Part of the BOS (Business Owner Stuff) role, is realizing that you just simply must follow up the debt and use every method possible, starting with small claims court did collectors etc., whatever it takes to collect the money.
It is yours… you deserve it!!