Manufacturers & Distributors ARTICLE -
When It Comes To Collections, Shoot Straigh
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Target Audience: Manufacturing and Distribution Companies, M&D Industry, Collections Department


Demanding payment for your products may not be fun, but it’s important. And in a weak economy, it may mean the difference between financial solvency and serious trouble. The challenge is to improve your collections without alienating either your employees or your customers. Fortunately, it can be done.

Time Is Not On Your Side

A good collection process is like a good employee: It starts working immediately. If you let overdue bills slide, your customers may start to assume they can ignore your due dates — with disastrous implications for your cash flow and profitability.

To prevent that from happening, start early. Ask your customers for their billing requirements, and how you can make it easier for them to pay on time. Work to meet those requirements, but if your systems can’t accommodate them, be honest in saying so.

Then be proactive in following up on your bills before they’re due. If you send bills payable in 30 days, call each customer after 21 days. Make sure everything is all right with orders, and work to resolve any issues immediately, before payment is due.

Be Accurate, Be Prepared, Be Polite

One of the most common — and most preventable — reasons for payment delays is confusion over invoices. Be sure that the invoices you’re sending accurately reflect the work done for each customer. In other words, don’t let your invoices offer any excuses to delay payment.

Accurate bills and follow-up reminder calls will help speed payments, but they won’t eliminate overdue invoices. Sometimes you’re going to have to call customers who haven’t paid. When you do, be prepared, and be polite. Before you make the call, review all the relevant paperwork and have it in front of you for reference. Then be professional in requesting payment.

One of the things you’ll need to establish, particularly when the economy is in a slump, is whether the customer can’t pay or merely isn’t paying. If it’s the former, be flexible. Collecting a little at a time is better than not collecting at all.

If a customer is lax, however, don’t let yourself be sidetracked. Keep the conversation on the payment, and don’t end the dialogue without a commitment that you’ll be paid a specific amount by a specific date. If you don’t receive the payment as promised, call back at least once a week until you do.

Also, prioritize your collection efforts. If a large customer owes you $50,000 and 10 smaller customers owe you $2,000 each, focus on the large vendor first. It’s fine to treat them all equally if you have the resources, but getting the big accounts current first will do more to protect your cash flow, delinquencies, days sales outstanding — and your bottom line.

Collect What You Deserve

There’s no one right answer on how to manage your collection process, but failing to manage it at all can be disastrous for your manufacturing company. Making collection calls may not be pleasant, but you’ve earned what you’re owed. You deserve to collect it.

Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.

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