Do Business Well

Your approach to payment of your accounts may have almost as much impact on the performance of your company as does the collection of your receivables.

In a perfect world, we would all enter into small business with plenty of cash. We would make money from the first day, never outgrow our financial resources, and never have a crisis interrupt our ability to pay. I have actually known a couple of small business owners for whom this has been true.

Even if it’s true for you, your bookkeeper will need to be alerted to take every discount possible, including some that aren’t that evident. Since many discounts are based on payment within ten days, it will mean that your system for ordering and taking receipt of goods—proper filling out of purchase orders, logging in of inventory, etc.—will need to be well oiled.

Some companies do not offer an early-pay discount. However, you may find that if you call their accounting department and propose to them that you would be happy to send the money early for a 2 percent discount, they may decide they could use the money. If you were to average a 2 percent discount on all your purchases during the year, it can add up to a great deal of money. A company doing $1 million in sales at 50 percent margins buys $500,000 worth of goods. Two percent of that is $10,000.

What can all this credit worthiness do for you?

1. Provide more credit. For instance, you may currently have a c edit line of $10,000 with a particular vendor. You may need or w nt to increase your line to $20,000 or more. If you have been di counting, you are almost certain to get an increase in your credit lim ‘t.
2. There may be a product line that you currently don’t carry becau the supplier limits distribution by area or by size or type of custo er,-.As you seek to be added as a customer your credit standing may be a deciding factor between you and a competitor. (My experience has shown that other factors such as proven ability to sell, promises of time and energy devoted to that line, and plain old salesmanship can be more decisive. But in a close battle, credit may win the day.)
3. Even the best-run companies sometimes have a bad year. This may result in cash tightening up. But your supplier’s accounts receivable (A/R) clerk who is looking over the aging and deciding who to call first is unlikely to even think of calling the account who always pays by discount. This will be true at least until the item is sixty days or more. At that point, since you are known to normally pay by discount, you have maximum credibility in explaining your circumstances and your plan for dealing with the payment.
4. Creditworthiness can provide a springboard for very rapid _expansion. A company that has maximized all of its credit lines and is constantly paying late will find the going tough when they want to expand rapidly. This is because there is nowhere to go for supplier credit, the best and least expensive form of capital.

However, the company that has been paying within ten to thirty days can ask for and get one or more of the following: a larger line of credit; .or an extension of terms beyond the norm. For instance, if normal terms are net thirty, they will have a good chance of asking for and getting net sixty or even ninety.

Once in a while, cash might really get tight. If it happens more than occasionally you may want to seek advice from your CPA or other advisor about why this is true and how to correct it. For those occasions when you need a few ideas of how to get through a dark time, consider the following:

Call your creditors before they call you. If you are going to be over thirty days past due, or if the account is one that you know will call at three days or fifteen, call them a couple of days before you would expect their call. Your script goes something like this: “Hello, Chris. I wanted to give you a call about my account. Did you hear about our flood?” At this point you will want to give far more detail than the A/R clerk wants to hear. Explain exactly how the situation has affected your ability to pay. Tell her your plan for payment. Ask her for a continuation of shipments on open account according to a formula you propose.

For instance, you might suggest that as you need product, you will call her and you will both agree to how much you will pay to get your merchandise shipped. A common approach is the amount of the new shipment plus 10 percent of the old balance.

Be just as humble as you can be on the one hand, and as reassuring as possible on the other. “This will only be a temporary problem. We would expect to be back to paying within terms by March or so. Will you work with me, Chris?”

Other extremely effective statements include: “I’ll always give you the straight scoop. I won’t tell you I can send the money on a certain day unless I know I can. If I think I can, but am not certain, I’ll say it that way. I won’t tell you the check’s in the mail unless it is.

“You’ll always be able to reach me personally. If you’re told that I’m not in, it’s because I really am out. I’ll call you back the same day if at all possible.

“If you’re ever dissatisfied with anything that my accounts payable [A/P] clerk says or does, don’t hesitate to call me, personally.”

In a nutshell, you want to be honest, humble, assuring, available, and persuasive.. Then you must do what you said you would do. If the supplier’s A/R clerk or controller is going out on a limb for you, you must follow through on every promise. If, for any reason, you can’t, pick up the phone before the time you will miss your promise and eat humble pie again.

A few last thoughts on payables.

If you should ever bounce a check, call the supplier before they receive the notice from the bank. Explain the circumstances and ask that they redeposit it. If your situation is not going to clear up by the time the check would hit your bank the second time, ask that they hold the check for a few days. You will call them when it is “good.” Again, end the conversation with: “If you don’t hear from me within a couple of days, don’t hesitate to give me a call.”

Don’t ever say you’ve lost the invoice unless you have. Don’t ever say the check is in the mail unless it is. Don’t ever send a check unsigned to buy a few days. These are old, tired tricks that every A/R clerk knows. They will work against you.

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• Electronic Money and Online Transactions
• Setting an All-Time Credit Record
• Web Sale Measuring your Return on Loyalty
• Packaging Issues
• Why Businesses Fail part 3
• Hints for madam chairman
• The return you expecting on your investment
• Why Businesses Succeed
• Link Exchange

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