Overdue Accounts

Have you a clear-cut policy on payment terms? And are these terms plainly written on every invoice or statement? Unless you run a COD business (where the "C" can stand for "cheque" and "credit card" as well as "for cash") this is a vital consideration in your efforts to control cashflow.

For instance, if your normal payment terms are 30 days, you need to understand this can mean that you are lending your customer interest free money for up to 2 months. (Assume that he buys early in May; you send a statement at the end of May saying "30 days"; he pays you on June 30th) His account has never been "overdue",   yet it's cost you about 2% of the value of the sale, given current interest rates.

If your "bottom line" net profit is, say, 5% (not unusual) you have just lost 40% of your profit on that sale! And yet it was a perfectly legitimate transaction.  You actually planned to lose 40% of your profit, which seems a rather strange thing to do! So now you've sacrificed profit as well as cashflow.

Whatever your payment terms are (and to preserve cashflow, we suggest something like 7 or 14 days "from invoice date" - not statement date) these must be printed clearly on every invoice. And, by the way, if you don't want your customers to pay you any time soon, print an "ageing box" on your statements showing details of amounts aged 30, 60, 90 - even 120 days. Who would pay after 60 days when you're telling him that your system is geared for an even longer wait?! In our view, accounts can be one of only two classifications: they are either outstanding or overdue. And just one day after your payment terms expire they become overdue.

Once an account is overdue it needs to be moved from the "pending" tray to the "action" tray. And, after your own in-house collection processes have run their course without success, it's time to call in a third-party debt recovery agency - sooner rather than later.

Today's slow payer is tomorrow's bad debt, so bring on the experts right away!