Hello Finance Manager!
I am the CEO of a small startup. I know that you primarily give advice for law firms, doctors’ offices, and other businesses that provide a service. We provide goods (little trinkets, toys, and other small items) to people who either have retail space or who have online businesses. How can my business minimize the risk of delinquent accounts?
Treasures in Trenton, NJ
Thanks for writing! You are actually asking a really good question. Delinquent accounts can affect any business. It’s excellent that you want to find a way to minimize that risk. I’m really glad you wrote because we are in the midst of writing an exciting bonus piece about this very subject. So, to get a more in-depth answer, make sure that you sign up for our newsletter! With that said, let’s talk about some solutions.
The main key is to start each relationship from the proactive attitude that you’re already displaying. This means that you make sure that you have the following first party tools in place:
- The right credit controls in place that will help you give out the appropriate line of credit to each customer;
- If needed, insist on an appropriate deposit;
- Make sure that you have all of your billing, payment, and collection terms in writing;
- Use written contracts with each customer. Do not rely on oral agreements; and
- Always follow through.
When you take the time to set-up the proper first party tools, you have fewer delinquent accounts that must be turned over to a third party collector (stay tuned for our bonus blog coming out this month that will give you the inside scoop on why using a collections agency may not be the best solution for your business).
Now, with that being said, why do you need the above items in your business? Because they help you make good decisions and to have a plan. You look more professional when you use written policies and procedures. Having signed documents can make collections easier if you ever get to that point.
Using the right credit controls (including the use of a signed credit application, agreement, and retrieving a credit report) can help you better determine the value of goods that you should provide to any customer.
Written policies and procedures that explain your billing and payment acceptance is just as much for your customer as it is for your company to have guidelines. This can answer questions that your customers have about what they should expect. Sometimes customers don’t pay because they have a question. This document can answer their questions and provide the contact information that they need if they want to talk to someone from your company about their concerns.
Following through and following up are two of your biggest weapons against delinquent accounts. If you say that you will begin calling customers who are 48 hours late with their payments, do it. Otherwise, you may have customers that see just how far they can push you. If you call someone about a past due account and they tell you to call back in a week for the payment, follow-up on that day. You must do what you say you will do or you will run yourself out of business.
We hope that helps you, Treasures. Good luck with your business!
Clients A.R.M. provides more than 30 years of Director-level experience in accounts receivable and collections services. We provide first and third party services for a wide variety of service based businesses and corporations. Find out what Clients ARM can do for you! Call us today at 206-596-3000.