Do you offer credit terms to your customers? It’s tough doing credit business these days, right? If you have large outstanding debts you need to get a handle on these immediately; but more importantly you need a way to control future credit such that you don’t get left holding the bag. You may feel the suggestions here are harsh; but keep in mind the need to balance customer service with good business practices.

Probably your largest debtors are also the highest users of your goods and services. As a businessperson, you don't want to cut them off, but if collection problems get out of hand you need to do something! For example: your biggest customer owes you an amount that would pull you out of a financial hole if paid, but you don't expect to get paid for another ninety days. Is there a solution? Yes!

ARE YOUR ‘BEST’ CUSTOMERS REALLY ‘BEST’?
Begin with a payments analysis. Does it indicate that by quitting business with a ‘best’ customer would improve your cash flow, increase the profitability of your company, reduce your costs, and increase your credit relations with your bank? Perform this analysis by comparing your monthly cost of borrowing money against the cost of carrying credit for your 'best' customer. If their payment policies cost you more than the net profit involved, you will be better off without that customer! A more thorough audit may or may not confirm this quick analysis; but it will point-out a problem! Here are a few ideas you could implement starting tomorrow morning to improve collections without totally destroying customer relations.

DETERMINE CUT-OFF DATE
Compare the cost of borrowing money with the profit generated by selling to a credit customer. Calculate the absolute maximum number of days an account can remain on your books and still generate a profit. Make this number of days the cut-off date for any future credit with the delinquent firm. You don’t need this customer. Start collection procedures.

MAIL EARLY
Mail statements ten days in advance of the due date, and call the problem client on the day you figure they have received the statement asking, "Did you receive our statement?" and "When will you mail your check?" Record the date and call the day before that date reminding the customer of the promise to pay. Don't hesitate, it’s your money, and this is a problem customers.

CHART SLOW PAYERS
Chart the payment trends of all your credit customers. You may discover useful facts such as slow pay when the invoice is larger than a certain amount, seasonal patterns of slow pay, or other trends useful in setting future credit policies.

LISTEN /TALK
Be up front with new customers and get right in the face of problem customers. Talk about credit and ask what services you can provide to help them pay on time. Maybe the problem is a bureaucracy that you need to penetrate such as a home office requirement. Work it through. Again, it’s your money, so find out how to ‘work’ the bureaucracy, whatever it is.

PERSONAL INVOLVEMENT
You need to get personally involved in collections the day after a client has missed a due date. Remember it’s your money! Call the recalcitrant customer and ask whether a check was mailed. If not, ask the customer to bring one over right now to maintain their creditworthiness with you. Make it very clear that credit (trust) is earned, not given, and the behavior of not paying on time is a breach of that earned trust and could result in further actions.

If you do not receive a satisfactory answer, immediately suspend credit until the bill is paid. If they cannot pay the entire bill immediately, request half; if they cannot manage that amount keep reducing until you have a figure they can pay, and then insist a check for that amount be delivered today along with a payment plan. Every day you don’t get paid costs you money, so don’t stretch this out.

FURTHER ACTION
If the amount owed you is substantial, have your attorney draw up an agreement to pay that will stand up in court should your client go under. If your former customer refuses, tell your attorney to file to collect immediately. Remember, it’s your money.

(NOTE TO EDITORS: PLEASE INCLUDE THE FOLLOWING.)
Paul Tulenko is an International Small Business Success Consultant based in New Mexico, USA. Additional tips and suggestions are available at www.tulenko.com or call (toll-free) 1-866-TULENKO.