The Most Effective Collection Strategies for SME’s
One of the main reasons that small businesses close operations are due to weak cash flow. Without cash, you can’t pay your bills, buy new stock, or invest in the business. Credit control is a vital process to maintaining a healthy cash flow and you need to make time to do it regularly or employ someone to do it for you. But, even with good credit control, there will be times when customers do not pay.
Your credit control process should include the steps you will take with customers in the event of non-payment. You might consider using debt collectors. Debt collection can take a long time, but a debt agency will take over the whole process leaving you to carry on with your business. This is useful but it is also impersonal and does little towards maintaining relationships with your customers. It doesn’t address the reasons why a customer has not paid and also increases the likelihood of you never doing business with that customer again.
Sometimes, the personal approach is best. There are some strategies that will not only get the outstanding bill paid but will also retain your customer’s business.
Empathize With the Customer
Your customer will have a reason for not paying their bill. A regular credit control process does not investigate reasons for non-payment, just focussing on achieving payment. Understanding the reason for non-payment is a good basis on which to make a start at a resolution.
But it’s not just about asking about the reason but also empathizing. Empathy is the ability to understand and share the feelings of another. It is being able to relate to the situation of another. As a business owner, you might imagine that you share common ground with your customer but it’s not the case. When it comes to business, empathy is not usually a factor of success.
However, there could come a time when you can’t pay your suppliers, so it won’t do you any harm to listen to the reasons your customer has for non-payment. It will help you formulate an action plan that is plausible for the situation. It will also build trust between you and your customer which will only improve business relations going forward.
The best business relationships are beneficial to both parties. When it comes to debt collection, there should be solutions that benefit both the creditor and the debtor because accumulated debt is no good for either business. You don’t want to have to take the hit to your cash flow nor potentially to your bottom line and your debtor doesn’t want to suffer a poor credit rating or bad reputation.
Still work within good practice that doesn’t hurt your business but explore various options that can facilitate payment from your debtor. You might consider lengthening payment terms, changing the payments cycle, allowing payment by installment.
If you have found a mutually agreeable solution, don’t make it immovable. Things may not pan out as expected and your debtor may not be able to meet the revised terms.
Staying flexible after being let down on a new agreement can be a difficult stance to take. There are always going to be the thoughts that one, the customer is taking you for a ride, and two, even if the problems are genuine and there’s good reason to assume payment will be forthcoming, will it happen again in the future.
Keep communicating. This is an opportunity to renegotiate the revised terms or propose a different solution. There might be other options that are still fair and legal.
Obviously these three strategies are not ruthless, nor do they guarantee payment, but they make you an ethical business owner who deserves and will earn trust and respect. If all else fails, remember a debt collection agency can do the job for you.
About the Author
James Spencer is a leading debt collector Perth specialist. With over 15 years’ experience working as a thought leader across a number of industries like consultancy and accounts receivable management, he has built a reputation as a pioneer in providing practical knowledge and guidance for both SMEs and large enterprises across the world. With a strong following in the finance industry, James often attends conferences to keynote on operations management and debt recovery to help executives optimise their process and reduce operational deficiencies.