Dealing With Debtors: It’s Payback Time!

Sales are great, customers are delighted with your service and the market is on a roll. If this isn’t entrepreneur heaven, then what is? Cut to another scenario – you’re reviewing cash flow with your accountant, and no matter how good the sales look, your business continues to struggle to balance collections with monthly payouts. Despite being delighted by their business dealings with your company, customers have shown a marked reluctance to pay on time – maybe, the extended credit period is the real cause for their happiness! Welcome to the world of debtor management, entrepreneur hell, in other words!

As entrepreneurs, we are so caught up in building sales and acquiring customers, that we often lose sight of the real purpose of business – making money. And for that to happen, we must receive fair payment for our services. No sale is complete unless paid for, and the sooner we swallow that bitter pill, the better. Don’t think that dealing with debtors and their roster of outstanding payments is the work of bean counters alone. As the head of your business, you need to ensure that the entire organization is geared towards this purpose.

Dealing with debtors is neither as unpleasant nor as impossible as it sounds. It only becomes that when matters are neglected for too long. Here are some measures that can prevent that from happening.

Put a system in place. So often, debtors don’t pay on time because no one asks them to! A customer expects to be reminded to make payment, just as he or she is prepared for a sales pitch every now and then. It is funny how many star salespersons fight shy of asking a customer for a payment long due. If a customer detects any slackness in the system, whereby he can get away with delaying payment, you can be sure he will take full advantage. Make sure that your company follows a well scripted process for tracking, reviewing and following up on overdue payments. Also ensure you are closely informed about any habitual defaulters or any large outstanding payments that can leave a lasting impact.

Devise a sensible credit policy. Often, in a bid to wrest share away from competitors, you might be tempted to offer extra lenient terms. In which case, you’d better be prepared for dealing with debtors at a later stage. Do not use credit terms as a tactical advantage to boost sales; that is a defensive move, and could be perceived as a sign of weakness. You can always ease the terms for customers with an impeccable track record, or those that commit large volumes of regular business, but don’t make it a standard operating practice.

Take precaution while signing up. So, you have an idiot proof system in place, and your policies are so tight, even the Fed would nod in approval. And you’re still dealing with debtors every now and then. What gives? Perhaps the answer lies in tightening up the customer evaluation procedure. Whenever you sign up a new buyer, take care to study their credentials from a credit-worthiness point of view. Ask an expert for advice on the best way to assess whether a customer could be a potential credit risk or not. Also, make sure that you validate key financial information provided in the customer’s credit application. And finally, incorporate all the necessary terms and conditions that will protect your interests and facilitate recovery of dues, in the contract that you sign with the customer.

Gearing up your business in the ways described above will make dealing with debtors much more manageable. In the unhappy event that you are still stuck with a couple of tricky customers, you will need to follow a stringent recovery procedure site from where you can easily get all the standard forms that may be required during the process of collecting your debts. Litigation is the last thing you need to embark on, so don’t jump into it before you’ve tried softer measures of persuasion. Generally, a few polite reminders and a letter or two should do the trick. If that doesn’t work, you could engage the services of professional debt collectors such as Fidelity Information Corporation who could reason things out on your behalf. When all else fails, laying down the law is probably the only way of dealing with debtors, but, prudent management and a few precautions can keep you from entrepreneur hell for the most part!