Ask Andi: We need tough revenue measures. We can’t live on 60-90 day payments. Clients delay paying. Vendors ask for immediate payment. Employees won’t push customers for payment but expect their paychecks on time. Those are two double standards I’d like to change.
Implement tough revenue measures to offset profit loss. Getting paid on time is essential. Cash flow is tighter, today, and some clients are in financial trouble. Get everyone in the company on board with collections.
Tough revenue measures for tough times
Most companies are dealing with some or all of the following. Greater competition, fewer quality sales, and shrinking margins. Also increased prices for materials, labor, and overhead. In the process, some companies are struggling financially, pulling their vendors into the pool with them. Tough time means tough revenue measures.
Keep your company out of trouble by demanding payment sooner. Set spending limits on clients. If clients delay payment, change terms immediately to pay upfront. Don’t refer to the old days, and what a good customer this was. Just because clients could be relied on in the past, doesn’t mean they can be today.
Many companies are using up what credit they can get. Banks have reduced credit lines and lowered spending limits on credit cards. Vendors have increased interest charges and demand payment upfront. There’s less margin, as costs for insurance, gas and materials rise. Your company needs to adjust to the new reality.
Preserve cash flow by reducing accounts receivable. Increase the amount you ask for upfront, upon contract. If you accept progress payments, add another increment. Reduce the final payment to 10% or less of the total amount.
Increase financial stability
Don’t cave into bullying. Customers who say they’re planning to go elsewhere if you don’t extend terms may be worth losing. Check with their other suppliers to find out if they’re past due. Hold back the final shipment until you have payment in hand if you can.
Stopping work until you get paid is a great way to reduce outstanding amounts. Work customers down to 45 days past due, and then under 30. Recognize that continuing to work on something when payment is in question is potentially like working for free.
Switch away from wasting time on collecting accounts. Assign staff to call customers prior to delivery. Arrange for payment ahead of time. Email invoices and call to confirm receipt. Tell customers that terms have changed, and they’ll have to use more traditional credit sources such as their own credit lines and credit cards.
You don’t have to treat all customers equally. Focus on your best customers and the ones that have the potential to be the best customers in the future. Stack rank customers to identify who are the keepers and who you can afford to lose.
Tough revenue measures are hard
Score each client for profitability, ease of working together, ability to get paid without effort, and future potential. Clients that score low in one area often score low in others. Fix or get rid of the low scores. It’s called the last rhino at the stampede. The one who gets eaten.
Focus on reducing accounts receivable to zero with the riskiest accounts. If they won’t comply, suggest they go elsewhere. Call their bluff, refusing to deliver unless they give you a credit card or check. Make sure they understand you’re serious and prepared to stand your ground.
Have meetings with your staff to discuss the importance of changing how your company collects money. Point out that while it’s difficult to confront customers over money, the alternative, not getting paid, is even worse. Make collections everyone’s responsibility.
Set up, teams. Put someone in charge of meeting with staff every few days to work on the most difficult accounts. Ask them to report back to you on progress.
Don’t give up. It’s a process to change behaviors with both clients and staff. Once you make changes, your company will be much healthier.
