It’s no coincidence that some businesses struggle constantly with bad debt write-offs, while others seem to cruise along with overdue accounts receivable very seldom becoming an issue.
Sometimes it can be directly related to the business model. If yours is cash-only, upfront, you likely don’t worry much about getting paid.
If that’s the case, great for you. Instead of reading this article, enjoy the next few minutes by happily counting your money!
For everyone else—any business that grants credit—luck won’t get you very far. And if you don’t get paid in guaranteed funds (irrevocable payments like cash, email money transfer, bank wire or certified cheque) every single time you deliver a product or service, you’re a credit grantor.
Of the businesses that very seldom encounter non-payment issues, I’ve noticed they all do several things consistently. With credit to the basic concepts in Stephen Covey’s business classic The 7 Habits of Highly Successful People, I bring you my version for the Accounts Receivable management world: The 7 Habits of a Credit-Wise Company:
- Be Proactive: From the beginning your sales process, take actions that transparently lay out your expectations, and the steps you intend to take. For any amount that you cannot afford to lose, do a credit check and have the customer fill out a credit application. Have a process to connect with the customer a few days before payment is due (this can easily be automated) and take action at the first sign of trouble. Reactive businesses are by their very nature at a disadvantage. Remember, when money is tight, getting paid is a competitive activity. How proactive are you compared to other creditors?
- Begin With the End in Mind: When you start a sale, envision not only the likely positive outcome, but what will happen if things go poorly. If you deliver a less-than-perfect experience or service, will it impact your ability to collect payment in full? What does your contract say will happen if the sale or project is cancelled? (You DO have a contract, right?) Do you spell out how late fees work? If your contract does not, you probably won’t be able to enforce them. Consider everything that can possibly go wrong, and have a mitigation prepared for it. Things will go more smoothly, you will be paid consistently and you’ll sleep better at night.
- Put First Things First. With a large contract, it can be easy to get caught up in the excitement, be distracted by frivolous things and skip important steps. Entrepreneurs are by nature optimists, and tend to anticipate the best possible outcome. But when the high-fives are done, it is time to go directly to process and ensure the priorities are correctly identified—and followed. This habit eliminates distractions and keeps everyone on task. Do every single thing first that is urgent and important to fulfill your end of the deal and ensure you will be paid for it. (Use my handy debt recovery calculator to see what money owed to you is really worth.) Plan and schedule the things that are not urgent but important. Delegate tasks that are important but not urgent—and get rid of distractions that are neither urgent nor important.
- Think Win-Win. Business owners who see transactions as a zero-sum game, where one party wins and the other invariably loses, are not going to amass a lot of 5-star reviews. In every sale, imagine yourself in the customer’s role, and the outcome that would provide you with most value. That value should be so great that paying in full, on time is the only fair option. (Enforced by a rock-solid contract and a proactive vendor, of course.) Demonstrate to customers (and document) that you consistently focus on their success, and reciprocity is naturally expected. If there is a dispute, your demonstrable efforts to create a win for the customer can go a long way in ultimately collecting.
- Seek First to Understand, Then to Be Understood. At the first sign of a payment issue, reach out to the customer, and seek to find out if anything is wrong. If it is an issue with the product or service, do what you can to make it right. If it is an issue with the customer’s cash flow, be understanding, but firm on your payment terms. Show empathy, but do not let the customer’s problem become your own. Make it understood that you have an agreement, and your business has a standard process for enforcing it. You’re not the bank.
- Synergize. Synergy is when teamwork achieves greater results than the sum total of what each individual can do alone. When my MetCredit teams and I work for clients as their collection agency, we each bring training and unique skills to the table. In doing so, we can resolve issues and collect payments that otherwise might have been kissed goodbye as bad debt. Unless you are a professional debt collector, your limited time is almost certainly best used in earning new money and leaving overdue accounts to the professionals. That’s synergy at work.
- Sharpen the Saw. Your processes, tools and contracts from 2019 probably no longer cover all the ways you work today. The entire business landscape has changed. As you focus on continuously improving your business, think also of how you can make your credit management better. Revisit the way you write a deal. If anything has gone wrong in the past year, dissect it with your leadership team to determine the root cause. Don’t just tackle the symptoms, but drill down to the underlying reason for the issue—and fix it. Take a pause to sharpen up your tools (and add some stronger ones to your quiver), and you will achieve your goals much faster.
There is no one silver bullet to avoid debt collection problems, but these seven habits may be the next closest thing. And if you find yourself with a customer who resists living up to your payment terms, don’t hesitate to turn the account over to your collection agency. I wrote a while back that 60 is the new 90 in debt collection, and it is more true today than it has ever been.
Reach out any time. And don’t forget to download my free Debt Collection Pro Tips.
