Here’s a simply strategy to clean up those year-end slow-payers before the holidays.
In this issue we will discuss the costs and benefits of having a solid plan of attack for your slow-paying accounts.
Cash flow is the lifeblood of any business. Without it your company will have a financial heart attack. Therefore it makes good sense to have a consistent strategy for collecting your receivables. And while large businesses generally have a consistent approach when managing their receivables, many small and medium sized businesses do not.
The owners of small and medium sized business are usually pretty close to their customers. This can be both good and bad. Good if the relationship is respected bad if your “friend” uses it to take advantage of you.
So What’s a R.I.P?
A R.I.P. is defined by Brad Hams of the book “Ownership Thinking” as a Rapid Improvement Plan for the financial health of your business. He calls missed opportunities “cracks in the table” where your profits can fall. A R.I.P. is an initiative that you and your staff can implement easily to improve your business right now as well as creating a fun activity in which all of your staff can participate. An example of a year-end receivable clean up R.I.P. might look like this:
1. Produce clear, accurate, and timely invoices
2. Ask for deposits and/or progress payments
3. Implement a seven day customer service call (seven days after performing your work and invoicing the job, your customer service dept. will call the client and ensure they are happy with your work and inquire if there are concerns about the invoice) This is looked upon by your customer as a pro-active service call, yet provides you with the ability to discover or eliminate potential excuses for non-payment of the invoice.
4. Complete credit approvals BEFORE the order is processed
5. Create and send (by email) monthly statements to customers
6. Have the sales team keep track of past due invoices and report on these at a weekly management huddle, after which the next action would be determined.
7. Customers that are past due 91 days and longer to be sent to a professional collector with the view to collecting the funds and retaining the customer.
a) A R.I.P is a tool to engage all employees in improving the performance of one Key Performance Indicator at a time.
b) R.I.P’s shouldn’t be difficult to design and can be created in just a few hours
c) Non-management people should be involved in the design of a R.I.P.
d) Your organization should have at least one R.I.P in process at all timesAccording to the author of Ownership Thinking, Brad Hams, R.I.P’s are powerful tools for a number of reasons aside from profit enhancement. They also identify process improvements