Do Business Well

I owned and operated a wholesale company with approximately one thousand retailers as my customers. I was completely computerized and sent statements to my customers every month in addition to their invoices.

We offered a 3 percent cash discount for payments received within ten days of invoice date. We charged 1.5 percent per month interest on accounts that were not paid within the standard thirty- day terms. The U.S. economy had enjoyed two very prosperous years. For all of these reasons, the company was collecting its accounts in an average of thirty days.

In addition, we had only needed to write off .5 percent of our total sales because of the bankruptcies or liquidations of our customers. This was excellent, given the number and quality of our customers.

Because of our excellent results in this area, we paid little attention to collections. Then it happened. The recession. Within ninety days our average days to collect went from thirty toseventy-five. In other words, we collected almost nothing during that period while continuing to ship to accounts that were falling further and further behind. We almost went broke. It can happenthat fast!

Here are the steps you need to take to establish a disciplined approach to collections.

1. You’ll reduce the amount of time and effort in collecting money if you spend time in the beginning by checking the creditworthiness of your customers. There are some standard practices, and then there are some secrets. The standard practices will rarely provide much insight, but the secret approaches can and do.

A. The most standard thing to do is send your new customera credit application, such as the one that follows:

Company name in full:

Is this a division or subsidiary of any other company? If so, please provide the name of the parent company in full:

If the company is a sole proprietorship, please indicate the name, home address, and home phone number of the owner:

If the company is a partnership, please indicate the name, home address, and home phone number of all partners holding at least a 25 percent share. Please indicate the percentage ownership of each:

If the company is a corporation, please indicate the state of incorporation, and the name, home address, and home phone number of the president and the secretary of the corporation:

Please provide the name of any banks where you have checking, savings, or lines of credit along with address and phone number. Also provide the account numbers, the name identifying the account if different from the company name above, and any contact person at the bank who is familiar with the account. Also send a copy of your most recent checking account statement [ Secret #1. If they will provide this—and many will balk at the idea—you'll learn far more about their cash flow than anything that the bank can tell you in the standard credit check.]:

Please provide five references. [ Secret #2. Everybody asks for three, so every deadbeat company always has three prepared references. By asking for five, you greatly reduce the likelihood of getting friendly instead of honest references.] Include the addresses, phone numbers, fax numbers, and any contact person familiar with your account. Also send a copy of your most recent statement from that supplier. [Secret #3. The statement will point up the reality of the payment history with that supplier, where the phone call may not.]:

Are you delinquent in any tax payments including payroll withholding? [Secret #4. Nobody ever asks this, but a company in trouble will commonly start missing one or more payroll tax payments.]:

Please send a copy of your most recent financial statement. Is this a compilation, review, or audited statement? If internally prepared or a compilation, please also provide a signed copy of your most recent federal tax return. [ Secret #5. Banks, leasing companies, and landlords always ask for reviewed or audited statements. If none is available, then they require signed tax returns. No one asks for this information on a credit application to establish an open account, even though the amount of money "loaned out" by you to your customer may be much greater than the amounts involved in a lease. You will learn more from these documents than from most of the rest of the above.]:

Are the principals named above willing to sign a personal guarantee for amounts above $5,000? [ Secret #6. The amount shown may be higher or lower, but many of your customers will be intimidated into signing a personal guarantee. It is unlikely that you will ever enforce this guarantee, but it gives you substantial leverage in collection. They are far more likely to pay you on time than another supplier who has no guarantee, and when they are in trouble, they will pay you first for sure.]:

Possibly related posts: (automatically generated)
Collection Procedures part 1

• Collection Procedures part3
• Collection Procedures part 2
• Enthrall your Customers with what you do best
• Online Marketing, Success in Business, Website Strategies part 2
• Appointing, Terminating, and Motivating Outside Sales Reps
• Business Security, Crime Controlling 29 effective ways! (11-29)
• Building Online Customer Relationships
• Lead the Way
• Get Customers up and Running
• I Made My Own Advertising Work part 3

3 Comments »