How many times have you heard me say your small business is not a bank? Plenty I’m sure. 
And although I encourage you not to sell to your customers on credit, I’m a realist and do understand it’s a must for many small business owners.
So I tapped into Ted Shalek, CFO of Smart Online, a company that specializes in technology based solutions for small business owners, who believes that the risks associated with selling on credit can be greatly reduced if the proper steps are followed.
“Since we do not all have the luxury of knowing and trusting each customer, we must take precautions to protect the cash flow of our small business,” said Shalek, an authority on small business. “If you do not know the customer, make sure that you obtain solid and confirmable information about the prospective customer by identifying their name, address, phone number, email address and business/credit references, credit card numbers if appropriate.”
Here are a few simple steps he recommends you take to significantly decrease the likelihood of future collections nightmares
>> Reminder Notice: Send out 7 days before the original, agreed upon payment date, if you have not received payment.
>> Read Receipts: In the email, let your customer know that you had an agreement, you provided the service or product on a timely basis and it is customer’s obligation to provide you with payment.
>> Stay Professional: Place a professional call to the buyer and/or the point person at your customer’s office. During the call, be firm and remember to state the facts and identify specific payment terms and times.
>> Appointments: If the amount owed is significant, make an appointment with the buyer to come by and collect the funds, and if they say the funds are not immediately available, keep the appointment and discuss specific payment terms and times.
>> Dramatic Impact: If the customer/buyer refuses to accept your calls and does not reply to emails requesting an appointment, stop by the customer’s office unexpectedly and tell them that you are prepared to wait on their premises until you receive payment or have a meeting with the owner, buyer or financial officer.
>> Collection Agency: Unfortunately, if the customer does not provide any positive feedback and refuses to acknowledge your communication, contact a reputable collection agency that will represent your company in a professional manner (remember that the collection company will retain a portion of the funds that collected from the customer).
Take care when selling on credit — and don’t forget you are not a bank. If it truly is necessary for your small business to grow, make sure you use proper care so you don’t set yourself up with collection problems down the road.
What do you think?
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Hi Denise, great post. Many of the business owners I have spoken to, all have in common a problem of receivables. As you mentioned, none of them are banks, but were compelled to issue business credit because of the nature of their firms (engineering, construction) and the associated cash cycles. Most of them didn’t have a comprehensive credit review and receivables policy when they issued credit, but they all do now! Aside from diminished sales, I think the biggest problem most firms are facing are a result of business credit and receivables. Certainly, a balancing act among business relationships and business decisions exists, but at the end of the day cash is always king!
Jason — Thanks for taking the time to share your thoughts. Yes, this scenario causes huge receivables issues for most companies. There are actions they can take to reduce the receivable time cycle, but it’s better to do it up front. I’m glad to hear they are at least conducting credit reviews and have some type of policy in place. That’s a step in the right direction.