Many business owners struggle to collect on their outstanding invoices. Customers tend to pay slowly, minimize the threat of action and focus first on bills that may result in the phone or electricity being turned off. So if you have nothing to leverage, and no ongoing service to discontinue, how do you get people to pay?
Collections aren’t fun – there is no doubt about it. And since most small businesses today have personal relationships with customers that they have worked hard to acquire, heavy-handed collection techniques can feel vicious or counter-productive. On the flip side, the lack of steady collection activity can lead to mad scrambles for capital and hard feelings toward lax customers. This article is intended to show you a better way to get the money that is owed to you… to help you build an organized collection system that you can feel good about.
Any collections system should be an orderly process that moves progressively through layers of increasing intensity and urgency and consequences. The levels of motivation to pay should play out as follows:
1. Incentives to pay early.
2. A reminder notice before the due date.
3. Friendly, sporadic communications referencing the past due balance.
4. Polite but firm reminders that are frequent and urgent and add penalties.
5. A ‘final’ notice.
6. Referral to an attorney or collection agency.
Let’s look at each motivation level individually and explore what the process would look like.
Motivation to pay early. It’s not widely known, but many mid-size and large companies (and even some small businesses) have a policy that requires bills to be paid at discounted rates if they are offered. That means that if you have an invoice that is due in 30 days, but you clearly offer 2% off the total for payments remitted within 10 days – the accounting staff may be required to take the offer and pay early! Even some individual consumers will be enticed by a small reduction in their bill and pay ahead of schedule with a motivating discount.
A reminder notice. Most companies don’t send a friendly reminder notice 5-10 days before a bill is due, but that simple step can really reduce the number of overdue invoices you deal with. It reminds customers of the reasons that they should pay before the due date passes while they still have time to act. The bottom line is that everyone is busy and cash-strapped, so keeping your bill in the forefront of people’s mind in a polite and helpful way can mean that you get your money before another guy gets his.
Friendly, sporadic communications. Once an invoice has gone beyond its due date, you should start by assuming the best about your customer – times are tight, they got busy, your bill got mislaid, etc… Your early past due notifications via telephone or mail should take the approach of friendly reminders or simple balance statements, and they should offer the customer one last chance to avoid a late fee (i.e. “Your bill is now 5 days past due. If you remit payment by the 15th of the month we will waive our normal late fee of $25 as a thank you.”) This phase of the process should stay light, non-threatening and continue to offer positive incentives to pay up.
Polite, but firm reminders with increasing frequency. If you’ve made 3-6 contacts over 30-60 days and the customer still has not paid their bill or explained why, it’s time to step up the urgency of your communications. This is the stage in which you make repetitive phone calls and send more frequent notices. Late fees and interest should be applied to any balances due and you should state that charges will continue to accrue until the bill is paid. You may also let the customer know that credit will not be granted on any other purchases and that you will consider requiring up-front payment in the future. In spite of the more heavy tone, I urge you to avoid accusatory language and demonstrate openness, even while being firm in your demand for payment. This is the stage at which you might make an offer of payment terms if you are open to that type of arrangement. (i.e. “If you remit 1/3 of your balance this month, we will accept 1/3 next month and 1/3 in June.”)
Encourage your customers to call and discuss payment options with you in person, and state that you are sympathetic to difficult situations and want to help resolve the balance fairly. Most people have a very negative view of the collection process and assume that there is no room to bargain or delay payment. No one likes drowning in guilt or being made to feel like an irresponsible person, so be sure that you don’t project those negative emotions onto your customers. If you demonstrate your willingness to talk, they may at least call and give you a true picture of what is going on - and that will translate into better knowledge of your own financial picture.
Send a ‘final notice.’ Every business reaches a point where they really need to get paid or stop dealing with a past due invoice in-house. This is the time to send a final notice letter. You should state in no uncertain terms that while you value your customer and want to work with them to resolve their debt, you simply cannot allow the bill to remain on your books any longer. For most businesses this timeframe is between 90 and 180 days. It’s often a good idea to send a final notice via FedEx, UPS or Priority Mail just to lend some credibility to the letter and track receipt of the message.
Two things are important about final notices... First, a final notice should really be final. Some companies start sending out rude and threatening letters at the 30 day mark and they really don’t mean it. Your final notices won’t have teeth if you keep them coming for months on end with no tangible action. Second, you should clearly state that the customer still has time to pay (give a short deadline) and tell them exactly what will happen if they don’t. (This could be sending their balance to a collection agency or hiring an attorney.)
Having a systemized approach will make collections much less painful for everyone involved - your customers, your staff, and you. Set up a schedule of activities for your team and assign someone to handle each collections task. Give them telephone scripts, templates of various collection letters and a detailed time table of when to perform each activity.
The benefits of a formal collections system are many, including improved cash flow, realistic expectations about receivables, better customer relationships, happier staff members and, of course, higher profits!
Saturday, June 19, 2010
Friday, June 11, 2010
Leadership in Uncertain Times
Imagine "...the moment in 1492 when somebody thought This is it: the absolute edge of no return, to turn back now and make home or sail irrevocably on and either find land or plunge over the world's roaring rim."
William Faulkner wrote this beautiful passage about facing a desperate crossroad, and making a decision in the face of uncertainty in his novel Intruder in the Dust. It aptly sums up the enormity of responsibility of leadership, and the critical need for it.
There is a pervasive illusion stalking executives and managers today. The illusion is that they should have concrete certainty about all the answers all the time. To the contrary, leadership is in fact necessitated by uncertainty and the element of intuitive guessing never fully vanishes from the leadership landscape.
We're definitely coping with uncertain times right now. Upheaval in financial markets, lack of confidence in government, global unrest, war and economic stress are causing companies around the globe to question their strategies and budgets. These are the very times when leadership is crucial - and sometimes proves to be the dividing line between success and disaster.
When everything is rosy, everyone is getting along, and there is no uncertainty people don't need leaders. As Jim Kouzes puts it, "Uncertainty creates the necessary condition for leadership." If you find yourself in the uncomfortable position of having your team look to you during a critical juncture - don't panic! Don't be tormented by the assumption that you have to know exactly what to do at any given moment.
Leadership in uncertain times requires a few simple practices:
Embrace change and uncertainty. The longer you lead and the more responsibility you accept, the more you will inevitably face change. It can be your friend, or it can be your enemy, but it will not go away. How you view it is entirely up to you. You can never hide uncertainty from your followers, so it's best to embrace upheaval and make peace with the unknown; which will allow them to trust your strength and confidence while understanding your humanity.
Have clarity of vision. All great leaders know where they are ultimately going. They may have to sail through uncharted waters to get there, but they aren't uncertain about the end goal. Having an unwavering vision of the final prize will give you the fortitude to overcome difficulties and confront unknowns along the way.
Use what you already know and call your shot. When a general at war is faced with a do-or-die battle situation, what does he do? Does he say 'I can't command my troops because I don't have complete information'? Of course not! He draws upon historical facts, his knowledge base, the expertise of other people and intuition and he gives the order. Be decisive.
Measure success by the score, not the play. In sports, we accept that coaches make guesses and shift their strategies to suit the game situation. Somehow we don't acknowledge the same ever present give-and-take in the business world. Educated guesses and gutsy moves won't always work out, but if you measure your progress by the larger game score and not the individual play, you'll find that you most likely win more often than you lose.
Leadership involves taking other people on a journey with you - often to places you yourself have never been. You'll face unanticipated problems and have to change your plans to deliver the big win - that's life. But you must remain clear even when you are not certain. You must make decisions and stick with them. You must guide your team confidently and own the results of every decision you make.
Strong leaders will survive a few bad decisions... what they won't survive is a lack of vision or faltering courage. If you were captain of that ship of destiny in 1492 and you reached the point of no return, what would you do? Go home, or sail irrevocably on towards the world's roaring rim.
There is a pervasive illusion stalking executives and managers today. The illusion is that they should have concrete certainty about all the answers all the time. To the contrary, leadership is in fact necessitated by uncertainty and the element of intuitive guessing never fully vanishes from the leadership landscape.
We're definitely coping with uncertain times right now. Upheaval in financial markets, lack of confidence in government, global unrest, war and economic stress are causing companies around the globe to question their strategies and budgets. These are the very times when leadership is crucial - and sometimes proves to be the dividing line between success and disaster.
When everything is rosy, everyone is getting along, and there is no uncertainty people don't need leaders. As Jim Kouzes puts it, "Uncertainty creates the necessary condition for leadership." If you find yourself in the uncomfortable position of having your team look to you during a critical juncture - don't panic! Don't be tormented by the assumption that you have to know exactly what to do at any given moment.
Leadership in uncertain times requires a few simple practices:
Embrace change and uncertainty. The longer you lead and the more responsibility you accept, the more you will inevitably face change. It can be your friend, or it can be your enemy, but it will not go away. How you view it is entirely up to you. You can never hide uncertainty from your followers, so it's best to embrace upheaval and make peace with the unknown; which will allow them to trust your strength and confidence while understanding your humanity.
Have clarity of vision. All great leaders know where they are ultimately going. They may have to sail through uncharted waters to get there, but they aren't uncertain about the end goal. Having an unwavering vision of the final prize will give you the fortitude to overcome difficulties and confront unknowns along the way.
Use what you already know and call your shot. When a general at war is faced with a do-or-die battle situation, what does he do? Does he say 'I can't command my troops because I don't have complete information'? Of course not! He draws upon historical facts, his knowledge base, the expertise of other people and intuition and he gives the order. Be decisive.
Measure success by the score, not the play. In sports, we accept that coaches make guesses and shift their strategies to suit the game situation. Somehow we don't acknowledge the same ever present give-and-take in the business world. Educated guesses and gutsy moves won't always work out, but if you measure your progress by the larger game score and not the individual play, you'll find that you most likely win more often than you lose.
Leadership involves taking other people on a journey with you - often to places you yourself have never been. You'll face unanticipated problems and have to change your plans to deliver the big win - that's life. But you must remain clear even when you are not certain. You must make decisions and stick with them. You must guide your team confidently and own the results of every decision you make.
Strong leaders will survive a few bad decisions... what they won't survive is a lack of vision or faltering courage. If you were captain of that ship of destiny in 1492 and you reached the point of no return, what would you do? Go home, or sail irrevocably on towards the world's roaring rim.
Subscribe to:
Posts (Atom)