Cash is the life-blood of businesses and yet it is sometimes viewed as being an unpleasant activity which is undertaken by the Accounts Department. Sometimes the perception is: Sales guys are there to sell and the Accounts guys are there to call the customer to get paid !!
In order to be effective, there needs to be clear policies and procedures in place so that Sales, Customer Services and Finance departments of the company work together to ensure that customers pay promptly.
The following are some simple steps in ensuring prompt payment from customers:
- A clear policy should be followed in terms of who gets credit – if there is a doubt as regards whether the customer will pay, or if the customer will delay payment, then it is probably better not to make the sale on credit !
- The payment terms should always be signed off and agreed with the customer as part of the original quote.Payment in advance where possible, particularly for small value / recurring invoices.For larger sales – a payment schedule to include part payment at time of order, part payment on delivery and part payment 30 days after delivery of goods.
- There should be clear metrics which are reviewed monthly of the “collections performance” to include
the DSO calculation (how many days on average taken by customers to pay);
number of customers and amounts overdue for payment;
what is the average amount of bad debt write off per annum etc. - A proper escalation policy should be agreed upon for collections: telephone call 1, telephone call 2, letter 1, letter 2, instruct legal etc.
- The collections / credit control function should be operated by staff that are firm in their manner and are rigid in their follow up on agreements. There is little point in having someone that is very timid continually calling customers for payment !!
- Many businesses use bank overdrafts to fund their business, while thousands of euro’s remain owing from their customers !! How effective is your company’s credit control process ??
OSMS can improve cash collections and implement proper metrics – for a free consultation please email mmolloy@osms.ie or call 087 278 3860.