This month of March is a defining one for most small businesses. As a nation we have pretty much received all the significant information for the year and what is left is to work regardless the environment and its’ dynamics.
An emerging issue for many small businesses is the difficulty of collecting dues for goods or services delivered, in a season when the value of money is so easily eroded by inflation.
This is especially so when dealing with big companies or large corporates, that often look down upon small businesses and expect them to be grateful for being given orders in the first place.
Some business partners are very difficult to avoid, and some large enterprises have weak finance departments that may not treat small players well.
The following are simple strategies to manage collections and ensure that receivables come in on time to avoid cash-flow crunches.
First things first, at the point of engagement, have clear payment terms and dates and communicate them with the client. Further reinforce such information by putting it on the invoice when it is sent out.
This provides a basis for reference in the future — it must be known if you expect payment upfront or after delivery, or in stages of work done. The payment method must be clear — cash or transfer and relevant account details displayed.
You may possible add in a line that refers to the action to be taken if there is a delay or that may be captured in a separate contract document.
Even after including all that information, expect that some clients may not read it, or ignore it. It is still necessary for your safety. Be sure to send out invoices straight after delivery of product, whilst the transaction is still fresh in the heads of both parties. Sending invoices late tends to have a contagion effect on the creditor, they will think that you are not in much of a hurry.
Always ask for a confirmation that the invoice has been received and that they have checked that all is in order. The communication will be your time stamp to enable you to count how long it may take and there is comfort in knowing that all necessary information is there so that nothing stalls payment.
Maintain a debtor’s schedule for easy reference when making follow-ups.
This is a simple database with fields for the debtor’s names, the amount due, date of invoicing, contact person and number. This information can easily be organized to show what is due to you by date and debt size. You may also add some notes as you follow up each one. Done well, this simple tool can show you when a payment has gone way over its’ time and requires urgent action.
Have a weekly cycle of checking, perhaps every Monday morning and call the debtor to check on progress. Once the ticker shows you that an account is past its’ due date, do not hesitate to set in motion the provisions of the contract. If the remedial action is charging interest, proceed to communicate the same to your client.
This will jolt most reasonable characters into action as many finance departments are not unaware but tend to procrastinate payments when they are aware there is no financial consequence.
Throughout the engagement with debtors, be sure to document exchanges. You may require these as evidence in the future and these are important professional communications that allow transactions to proceed smoothly should either party leave the company.
As such, copy in others to ensure more than one person is aware of what is happening. Be deliberate about being polite and kind in your written and spoken communication.
Summarise phone calls in a positive follow up email so that nothing is left to chance. Some clients require more of a push than others so be persistent and do not lose heart until you collect.
Granted, it is tiring to pursue money that one has earned, and rightly so but you gain nothing but stress and agitation if you allow the situation to get to you. Where there is sound evidence pointing to incapacitation of the debtor, consider giving a generous discount in exchange for a once off payment, rather than incurring a complete loss.
If you have given it your best shot with no results, it may be time to hand over to an unrelated party. You can outsource debt collection to person companies that specialise in it and can stay objective. This works when you have exhausted all possible ways internally and there is no sign of progress.
This action, however, may result in injury to or complete loss of relationships as some clients take this as an act of aggression. However, the bottom line matters in business so some customers are worth losing if the relationship has proven to not be mutually beneficial. It is worth it to reconsider pricing and payment terms to mitigate on collection problems.
Some companies have opted to charge in hard currency such as the United States dollar so that there is minimal loss if payments are delayed as real value is retained.
There is potential loss there as well as some customers may delay paying using the very same premise and this will still affect a small business badly, because when cash is not flowing one cannot reorder and continue running business smoothly.
Part payments will help so that you at the very least recover your inputs/upfront costs and can be in a position to afford a delay in the margin coming in.
Where a business trades in tangible goods, cash can be managed by securing consignment arrangement so that little or no cash is committed to stock. It will also be useful to reengage with the business bankers and get assistance in the form of working capital and order finance so as to avoid using internal resources.
After all is said and done, cash remains the lifeblood of business. Any enterprise that will thrive in Zimbabwe must tighten the belt in this regard. Aim to finish this quarter strong and having taken charge of that aspect of your business.