“I bet you have heard this one before!! I always remind clients: A sale is not a sale until the money’s in the bank,” says Laurie Brenssell, director of Laurie Brenssell Credit Consultants Ltd.
“I’m horrified to find the number of Kiwi SMEs who regard writing off debt as a ‘cost of business’, and worse still, even hold a percentage of previous profits to accommodate it.
Laurie believes that every SME must have a Trade Credit Policy, which is always written up and fully understood and implemented by, at the very least, all the ‘customer-facing’ employees if not all the staff.
“Cashflow is still the key to SME business survival. You may be trading profitably in the sense that you are ‘making a profit’, but unless your cashflow is under control, you are operating at risk,” says Laurie.
“The fundamental gap between when you invoice and when you get paid is the make or break of many businesses. Cashflow and working capital levels are driven by transactions, so the devil is in understanding the detail.”
Laurie believes the vast majority of SMEs simply cannot afford to wait on money they are owed without a severe impact on their bottom line, particularly if a majority of their sales are to a few customers – or even worse, if one ‘biggie’ is about a third of the business; a situation which is far too common.
If your SME business has cashflow or debtor problems, it’s probably your fault!!!
Staff or management in small to medium businesses are often forced to multi-task in their roles within the business.
That can be a challenge when trying to sell and provide a high level of customer service to valued customers yet still need to contact them to remind the customer of overdue or late payments.
Often this function in an SME gets left as the last thing to do or is ignored in the hope increased sales will negate the loss. When this is badly handled it threatens the very core of the customer goodwill that has been painstakingly built up in the business.
“Owners and managers are often reluctant to become involved in the messy side of collecting debt, however, fronting the issue can pay big rewards. Talking to customers who are raising disputes cuts past the credit controller filter; allowing you to understand what the real problem is and if the dispute really is a quality problem or if this is an excuse,” Laurie says.
Our Credit & Collection Workshops are tailor made for SMEs, we understand the issues that are faced getting payment from overdue debtors, but more importantly we can give you the confidence to deal with this and you will be rewarded by getting paid on time, retain customer goodwill & achieve customer retention
Some helpful hints are as follows:
1. Always credit-check potential customers.
In an ideal world all customers would pay promptly; however, in reality this is not the case. The first step to avoiding late payment and bad debts is to always credit-check potential customers before handing over goods or delivering a service.
2. Issue accurate invoices in a timely manner.
The average invoice payment period has nearly doubled from 30 days up to 50 days post GFC. Therefore, it is important that invoices are issued accurately and punctually so they can be paid on time.
3. Improve your payment terms with invoices and linked communications.
Remind customers of your payment terms. Send out reminder notices, email and call customers when a payment is overdue. Don’t let payment terms deteriorate. Push for the most optimal payment terms.
4. Offer payment plans.
Customers whose businesses are struggling may not be able to pay all of their outstanding invoices when they come due. Offering payment plans not only increases the likelihood of collecting the total amount due but can also generate goodwill with the customer. Move to more proactive management of customer debt.
5. Perform all the necessary checks.
To ensure the business is limiting its exposure to bad debts, have a Terms of Trade, develop a credit policy. Take the time to write out a clear and concise credit policy which is applied to all customers and clients.
It is a small investment to get the skills and information you and your staff need to better manage your cashflow and not risk your Customer Goodwill and retain your much-valued customers.
See the attached flyer to find out when the next workshop is in your area.