Debt management. Keeping an eye on your best customers.
With the global economy performing so badly, keeping an eye on your cashflow and receiving timely payments from your customers can mean a different between opening for business tomorrow or closing for business tomorrow. What more, it’s the person or people you least expected who can total screw your business – your best customers.
Talk to most business owners and they will tell you they have only been screwed by their best or most trusted customers. Really sensible managers can become so lenient by the value of their customers’ business and by the payment history that they can miss important early warning signals… regular payments arriving late… increased in the number of invoice queries… paperwork getting lost.
Devising and implementing trading terms which persuade customers to pay on time is a must to ensure trouble free trading. Many businesses make the mistake of supplying goods and services on informal arrangement, which can easily create dispute between the customers and the business because neither party have properly understood the basis of their transactions. It’s important to have clear terms and conditions and it may be sensible to have a lawyer draft standard terms which should cover:
- Quality
- Price
- Delivery arrangement
- Payment terms
- Right to charge interest on late payment or a one-off late payment fee
- Compensation for debt-recovery costs
However there is no point creating standard terms if they are not applied or enforced. So businesses need to make new customers aware of standard terms and conditions before providing goods or services. If you can afford to, offer discounts to customers who pay within a set period of time or pay by a specific payment method such as credit card or electronic fund transfer.
Like the saying “it is the one you loved most that can hurt you”, you can say in business, “it is the customer you trusted most that can hurt you”. It is therefore a good idea to remind regular customers of your standard terms from time to time. – the more important the customer, the more they should be reminded.
It is also essential for every new customer to complete a credit application form and you should check their credit rating before approving and providing credit. Any businesses, no matter how large or small they are can go bust, and when they do, they usually have a domino effect and effect many suppliers. Protect your business, keep a sensible eye on your customers, including your best customers, make sure they pay on time and you can continue doing business for many more years to come.