Every business should spend time and effort defining a cash collection strategy as a set of processes and standards designed to ensure that a company collects payments from customers for goods or services promptly. The cash collection strategy should cover the following key points:
Cash Flow Challenges:
The significance of cash flow is crucial for a business's survival.
Delays in receiving payments from customers can lead to difficulties in paying bills and staff, making a reliable collection strategy essential.
Payment Terms:
Businesses can set their own payment terms, such as seven, 14, 28, or 30 days.
However, it's crucial to differentiate between the payment term and the time to start the collection process.
Responsibility and Training:
Designating someone within the business to manage the cash collection process as a dedicated role is vital. Don’t rely on reception staff or office administrators to handle this task without proper training is necessary to ensure effective collection.
Process Review:
Businesses should review their entire invoicing and collection process to assess its efficiency and make necessary improvements.
Proactive Communication:
Rather than waiting until a payment is due, businesses should proactively contact customers to check on payment status. This can be framed as a customer care call.
Communication Methods:
Email invoice reminders are more effective than mailing statements. It's also essential to follow up with phone calls at regular intervals.
Customer Relationships:
Building strong relationships with the credit control teams at larger customers can help expedite payments. Relationships should be built at all levels of your customers organisation from sales, finance manager, CFO and even CEO to create stickiness into your client’s organisation.
Escalation:
If payments are delayed despite efforts, it's advisable to involve your account manager that services this particular client without delay. If the account manager in your business is unable to obtain payment, don’t hesitate to involve your CFO or CEO to discuss with the client.
Review Terms of Business:
Businesses should review their terms of business to ensure they are drafted correctly and contain key elements such as provisions for recovering goods in case of customer insolvency, retention of title clauses, and the ability to claim collection costs or contractual interest on overdue invoices. Document discussions with clients and address concerns around quality and completeness of delivery of service for example address snags promptly which delaying payment, for example negotiate a retention for snags on the basis that the balance of invoice is paid.
In conclusion, a well-defined cash collection strategy is crucial for a business's financial health, and businesses should proactively manage their accounts receivable to ensure cash flow remains steady. This involves efficient processes, proactive communication, and, if necessary, the involvement of your sales team and senior management.
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Acknowledgement:
Steps to take to improve your cash collection Published:
21st October 2020 Shakespeare Martineau
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