Cash flow is to a business what blood flow is to a human body: it’s life
Many companies are facing a larger number of habitual late pays lately. There are those that blame our lousy economy of the last several years. They say that they loosened up on their collection policies by delaying formal collection action in an effort to accommodate their customer’s cash flow problems.
Maybe they were being nice. Maybe they felt they had no choice. But either way, there’s a predictable domino effect. By now, the late pays have stacked up as customers get more behind in payments. And what’s worse, many of those customers have become accustomed to the more lenient policy.
Nothing can drain the life out of a business like racking up delinquent accounts!
But the economic tide is changing and for many businesses, things are looking a little bit brighter. While this is certainly fantastic news, there is some clean up that needs to be done in the wake.
If you were one of the businesses that lightened up on your customers to accommodate the tough times, it’s time to re-evaluate.
Review your credit & collection policy. Go over it line-by-line and tighten up the loose parts. It might help to go back to your original mission statement for a refresher of your purpose. But you’re by no means done …
Reiterate your policy. Talk to your customers. Point out any changes you’ve made to your terms. Draw the line back in the sand.
Stick to the rules. You made exceptions during the rough economic times. Now it’s time to get back into the habit of sticking with your own rules. Be strict with yourself and prudent with exceptions.
Communicate often. If the process of tightening up on your policies results in a little pushback, frequent communication will help. Talk regularly whether there are issues or not. Document your conversations by making notes that you keep in your customer’s file.
Address disputes immediately. If you’re shifting from a loose policy to a tighter one as we’re suggesting, you may find a level of discontent in the beginning. If you end up with a dispute as a result, do yourself and your customer a favor … respond with immediate action. Call your customer or make a trip to talk in person to resolve the matter right away.
If you’re facing an unusual amount of late pays, take the above steps to improve your cash flow! Review and reiterate your policy.