The First Rule for Small Business: "Collect Your Money"

The First Rule for Small Business: "Collect Your Money"

By Pat Meehan

If you own or manage a small business, you know the importance of cash flow. Without it bills can’t be paid, payrolls can’t be met, and stress infiltrates the operation.

For a small business to be considered solid, three things must be in place:

1. Money in the bank
2. Accounts Receivables
3. Projects in the works that will create new accounts receivables

If one of these three ingredients is missing, the business is not stable. Most small business folks are great sales people. They are customer focused and provide excellent products and services. One thing, however, that many small business folks lack, is a well developed method of collecting accounts receivables. Many times I have heard from small business people that their customer is very slow in paying invoices. I always try to remind a small business owner that the best way to keep a customer is to collect the money on time. If they don’t pay or become problematic as a slow payer, they are really not a customer.

The collection process in small business should start immediately. One of the biggest mistakes small business people make is that they send the invoice to the wrong person. When developing a new customer who will get a first time invoice, it is critical to know that customer's specific pay procedures. In most cases the person who gives you the order is not the person who processes your invoice. However, many small business people send the invoice to the person who gives the sales order. The chance of an invoice getting lost in this instance increases dramatically.

Here are some tips on collecting your well earned money:

1. Establish a method of invoice processing. Find out who the accounts payable person is in that organization and talk with them as to how to submit your invoice. Accounts payable people are extremely friendly and they love to pay bills. That is their job.

2. After an invoice is sent, wait 3 days and call the accounts payable department to verify that your invoice is in the system to be paid with a scheduled pay date. This way you know that your collection skills are working and you can spend your energy on creating new business.

3. Mark your calendar for three days after the due date of your invoice and call the accounts receivable department to ensure your check has been cut and mailed.

Always remember the best way to keep the relationship good with the person who gives you new sales orders is by keeping them out of the accounts payable process. Get to know your accounts payable person and develop a good relationship with him/her. Finally, always remember that the best way to keep a customer happy is to be a good vendor, part of which is collecting your hard earned dollars on time.

Our next blog will discuss negotiating payment terms. Happy collecting!

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