In Part 1 we discussed the importance of Establishing and Enforcing Payment Terms. Getting paid is not guaranteed. That’s why setting up payment protocols is critical, and every person in your team should at least be made aware of them. You could call a meeting and have all your sales reps, counter staff and admin team attend. Here are some guidelines to follow.
Accepting a new customer
- Establish payment terms. Keep up to date payment terms on hand where customers begin their relationship with your business. This could be on their own premises, on a job site, over the phone when placing an order or at your office or factory. No customer should be accepted without being shown – and asked to sign and return – your Payment Terms form. They can be emailed, posted, faxed or provided in person.
- Retained signed forms. Signed Payment Terms must be kept in the customer’s file, either in hard copy or on their computer file. This is your proof that they have agreed to your terms and can be used if ever debt collection proceedings become necessary.
- Negotiation. If terms are to be negotiated, they should be signed off on by a person of authority in your organisation and all team members should know who that person is.
- Goods and services can now be supplied.
Now that you are supplying your customer with goods and/or services, a regular, structured Accounts Receivable process should be followed. However your organisation processes invoices – written on-site, created in the office and emailed or generated via an accounting software package – they must be sent out without delay. There is no reason why you can’t issue an invoice the moment a job is finished or goods are handed over.
- Create a system. Yours could involve different coloured desk trays, Excel spreadsheets, accounting software, pen and paper or invoice books or any number of other elements. What’s important is that you make sure everyone knows the system. Follow it from A to Z and work out any kinks.
- Be consistent. Send invoices with regularity so that customers know when to expect them.
- Strive for accuracy. Any invoice with errors on it can cause it to be relegated to the “I need to contact them” pile and will result in payment delays.
The day after an account should have been paid, it has become overdue. At any point from now on, you can pursue payment with urgency. Never wait longer than is absolutely necessary to follow up. Put in place a system that will bring accounts back into view on a weekly basis. It could be an alert reminder, or a series of trays that get rotated according to length of time overdue.
- Initial reminder. Start with a friendly email, letter or phone call. Perhaps the account has been overlooked by mistake.
- Follow up. One week is plenty of time to wait. Your communication should now feature a greater sense of urgency. “We request that this payment be finalised by close of business on xyz date.” Give a precise cut-off date and then follow up again.
- Final reminder. Now, your tone should be insistent and assertive. “Unless we receive payment by close of business on xyz date, this matter will be referred to our debt collection agency.”
- Engage debt collection agency. Yes, there are fees involved but in many cases, these can be passed on to the debtor, particularly if a clause stating such is included in your Terms of Payment.
Revising Payment Terms
Any debtor who persistently pays late should be treated with caution. Revising the Payment Terms between your company and theirs is recommended. You may need to shorten due dates, request a percentage deposit up front or require even more information to guarantee their propensity to pay. You could even demand an authority to deduct their payments from their account before goods and services are provided, especially if they are on a regular basis such as a weekly supply of nappies or a subscription to a publication.
Never allow a customer to fall so far into arrears that by that time, they could have closed up shop, moved interstate or filed for bankruptcy. When it comes to getting paid, there are three rules of thumb to remember:
- Protect yourself with documentation.
- Act with urgency on overdue accounts.
- Be assertive in your communications.
The third article in this Getting Paid series will discuss When is a Client Actually a Liability?