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Now, More Than Ever, It is Time to Chase Your Receivables

Selling on credit is risky…

Businesses closed in the pandemic.  Meaning they cannot pay you. Or, you cannot reach them, as offices closed.

What to do?

Three things.

Number One – Re-Set Your Credit Terms

It is better to have no sale than a bad debt.

A bad debt is awfully expensive. It is not just the cash loss. It is the recovery cost.

Imagine you have a 30% gross margin percentage. This means if you sell something for $100 that item cost you $70 ($100-$70 = $30). $30 divided by $100 = 30%.

With me so far?

A bad debt of $6,000 translates to $20,000 in new sales required to re-coop it.

Do the math. $6,000 is lost – the bad debt. Divide that by 30% to get $20,000.

Now work it backwards. You sell $20,000 x 70% in costs = $14,000. Subtract your costs of $14,000 from $20,000 in sales leaves you with a gross profit of $6,000, or 30%.

That is what you must do in sales to get back to where you were before the $6,000 bad debt.

I hope that makes you cringe a little.

Re-set your credit terms. You get to say. If your customer refuses, they do not want to do business with you.

Number 2 – Chase More Aggressively

Go after those accounts owing fast.

Call days after you send the invoice. “Did you receive my invoice? By when can we expect payment?”

Use a system to chase them with persistent and professional emails.

We use a software program for our clients designed to do only this.

And, it works. Our clients have lower “days receivable” as a result.

Follow up aggressively, and persistently.

Following-up for sticky ones should be done at the highest level. The owner.

Why? No one feels the pain more of that loss than the owner. That pain will come through in the “tone” on that call.

Number 3 – Do not Use Your Bookkeeper to Make Calls

Your bookkeeper is a bookkeeper. They like bookkeeping. Making calls is not fun for them. Why? They are introverts.

You can force them to do it.

Remember, they did not set your credit terms; nor do they choose your customers.

How can they possibly be responsible for collections?

There are professional accounts receivable collection experts. You can hire an expert in-house. Or, you can outsource it.

Outsourcing is not cheap – usually a percentage of the amount collected is billed.

To Summarize:

  1. Update and tighten up your credit terms
  2. Aggressively pursue amounts owing to you. Use a system for email chasing. Follow-up with phone calls
  3. Use a professional – not your bookkeeper. Or you, as the owner, make the calls.

Thanks for reading…