We have all thrown out the compliment that a parent or teacher “runs a tight ship”. The origin of the phrase goes back to a time when running a tight ship could be the difference between life and death for the ship’s sailors – not just a messy room. Out at sea on a wooden ship, one loose line could bring disaster.
This is still true for today’s business owners. Entrepreneurs tend to be big picture people. In order to maximize profit, the entrepreneur has to make sure that they have a tight system in place from on-boarding a new customer to receiving and accounting for payments. It is imperative to make sure that they want to sell on open terms to this prospect. Not every sale is a good sale, only the ones that are paid in a timely manner. Running a credit check on the prospect will show their likelihood of paying according to terms agreed upon. Spending $20.00 to $40.00 on credit report will help the business owner avoid writing off accounts due to non-payment. Once the prospect’s credit is approved, verify the details. Ask specific questions:
- Is the customer issuing purchase orders or a contract?
- Where are invoices to be sent?
- Is a copy to e-mailed to accounts payable or left at the loading dock?
- What information needs to referenced on the invoice?
Taking time to collect this information and implement it correctly is often the difference between being paid on time and not seeing a check for months.
Have a collection strategy once the invoice is correctly delivered. Some companies pay promptly in accordance with agreed upon terms. Other companies may require more effort from the business to collect the payment. An excellent practice is to confirm by e-mail or a phone call that your invoice is approved and in line to be paid. The business owner can then be pro-active if the invoice has not yet been submitted for payment. In the event that an invoice becomes past due, the business owner needs to have a collection strategy in place. Generally, a polite call or e-mail will get a past due invoice paid. The business owner must immediately apply more pressure to their customer if the customer still delays payment. Cutting off future deliveries can be a painful but necessary step.
Someone must be responsible for each step of this process to ensure accountability. When too many people become involved, it may lead to confusion and many a lost invoice. The roles of the bookkeeper, customer service agent and the business owner must be clearly defined and they must stay on top of things to ensure a positive outcome. The entrepreneur will able to continue doing what they do best knowing that they are running a tight ship!
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