Are Your Business Collections a Roll-of-the-Dice?

 

Sales, without any doubt, is the life blood of any business. No business can survive and grow without connecting the value of its goods or services with customers willing to purchase.  Correspondingly, no business stays in business without receiving timely payment for the goods and services they have provided.

During two decades as a corporate credit manager, and later as a consultant, I have worked with thousands of small business owners that lament about how difficult it is to get paid after doing everything they promised to deliver their product or service. The most common reason they give for their struggle is – Poor Cash Flow.

Slow payments to vendors are indeed a result of poor cash flow from your customer to you; however,  

IT IS NOT THE CAUSE – IT IS JUST A SYMPTOM.

The first question you, as a business owner, need to be able to answer is, WHY is your customer unable, or unwilling to pay you?

Is your customer unable to get paid from their customers?

Is your customer growing quickly and struggling to keep up with increasing cash needs?

Has your customer lost key personnel?

Are your bills less of a priority than their other vendors?

Has your customer experienced a major, unexpected event of some type?

Is your customer’s business in trouble?

The answer to these and other questions you ask will reveal the CAUSE of cash flow problems.

The take-away I want to leave you with is to dig deeper when your customer tells you they haven’t paid you because of cash flow. The way your customer answers these type of questions helps you begin to understand why payments are slow and often the conversation can strengthen your relationship with your customers.  Answering these questions can help you to see patterns in your own receivables systems.  As a business owner you don’t want to fight the same battles over and over, so clues to how to develop systems that help you minimize the variance in payments can yield repeatable and improved results.

If your business is B to B, business to business, you are billing your customers and carrying accounts receivables. To decrease the chance of your business not getting paid or being paid slowly you need to leverage the 5 Cs of credit:

Character – Capacity – Capital – Conditions – Collateral

In upcoming blogs I will look at how each of these areas factor into the decision to open new accounts and sell to new and existing customers. Subsequent articles will cover how you can use credit management principles to assure more consistent cash flow/collections and how collecting should be reframed as an important touchpoint in the sales process.