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Email: stu@rtpreston.com

Setting the Tone: Collecting Your Cash

5/27/2015

 
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For a small business, one of the most difficult tasks is to collect on receivables: invoices.  Small business owners work very hard on building a strong relationship with each customer.  Many even become personal friends with clients.  Therefore, it can become very difficult to collect money when it’s due, and it gets harder and and more uncomfortable with each over-due minute.   But cash is cash and is the life-blood of our businesses.  So what’s the solution?

My advice is to have a very aggressive, disciplined cash collections process, as such:

  1. Get your invoices out on time.  In fact, I say get them out early.  I used to send invoices to builders even before we were finished with our work, knowing that they typically pay 45-60 days out.
  2. Be firm on your invoice.  Make the due date clear and consistent.  If you need to be a bank and offer terms, then getting this invoice out on time (i.e. early) is even more important.  Be sure to include a little nudge, like “please remit payment immediately.”
  3. Give them a small grace period after the due date, but once they hit that date, send them a ‘nasty-gram’ immediately.  Politely inform them that payment is past-due and that you expect payment in full immediately.  This letter can be gracious and firm.  And because it’s a letter, it is impersonal enough that it shouldn’t get in the way of your relationship.
  4. If the customer still hasn’t paid, then it’s time for a phone call: “Hey [name], can I stop by and pick up that check?”  Friendly, but with a firm expectation of payment.
You can come up with your own formula.  The point is to have some firmness and some discipline.  That sends a message to your customers that you expect payment, and they will start to put you at the front of the line when they write checks.  This will also help you maintain that great relationship because there won’t be any hard or uncomfortable feelings that go along with a long-outstanding invoice.






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    Stuart Preston, small business advisor, coach, consultant.

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