Roberts and Cowling

One of the major issues with business today is not getting the work but rather being paid for it. 

The media is talking about the doom and gloom of the European Crisis and the perceived error made by the Reserve Bank of Australia in not cutting interest rates last week. Something to bear in mind with any media reports is they are very rarely positive and typically concentrate on negatives. Why? Because fear sells newspapers so of course, they focus on negatives. Whilst there are some concerns regarding the world economy Australia is performing admirably. People are still buying (evidenced by my 15 minute trip around a shopping centre car park looking for a vacant spot on the weekend). Therefore, while the media are creating a storm about the lack of spending, I believe the real issue is being paid. It is very important to have a credit policy, know it and enforce it. Here are some Do’s and Don’ts when establishing a credit policy. 

Do’s

• Reward historically good payers. Thank them for their prompt payment and typically prioritise these clients to make sure their experience with your business is ‘A’ class. 
• Document your debtor system to ensure it is adhered to by the staff member in charge of following up accounts. 
• Enforce your terms. If your terms are 14 days and someone has not paid at this time, know the next step. If it is a phone call make sure that happens as close to the 14 days as possible..
• Before you accept extending credit consider asking for trade references
• Stop credit to historically bad payers. If a customer continually does not pay on time cease working for them on a credit basis and change their terms to COD or even in ask for payment in advance. 
• Set a credit limit – Evaluate this on a regular basis as a customer may earn the right to have a larger limit.
• Quote upfront. A customer cannot complain about the fee if it was agreed upon before work commenced. 
• Ensure that your credit terms are visible and agreed to by customers. Preferably this should be something that is signed to avoid any disputes in the future.  

Don’ts

• Offer discounts for overdue payments. Fundamentally I disagree with discounting as part of a strategy full stop. Certainly don’t offer discounts for overdue payments as you are rewarding the behaviour and encouraging them to pay late again. Secondly, it is devaluing your product or service; know your product/service, recognise its value and charge appropriately. Discounting is only communication to a client they were over charged in the first instance or you don’t believe in the value of your product/service. 
• Have a follow up system that extends terms. If your terms are 14 days and a phone call is the next follow up at 30 days you are communicating with clients that 30 days is their payment terms. 
• Be too aggressive initially. Sometimes invoices are lost or simply overlooked. A friendly reminder is probably a good approach, initially. While payment is important, offending a client when they never received the initial invoice is probably more costly to your business. 
• Be emotional in the process. I am not suggesting you be too harsh but clients that don’t pay will often tell you about their current situation and the reasons for non-payment. While sometimes this maybe understandable they are also paying other creditors in the meantime. Remember they engaged you on your credit terms and if they haven’t communicated any issues before a follow up then you should expect prompt payment. Discretion is however required with this approach as well.