Many customers are adopting a new motto these days: "What’s mine is mine; what’s yours is mine." Put a stop to that pronto.
No company can afford to take a cash flow hit these days.
Maybe that’s why so many customers are trying to stretch their payments — and they’re not even trying to be subtle about it:
- Bad: Nearly 90% of CFOs told us their customers are taking longer to pay their bills.
- Worse: 42% say customers are sitting on payments 11-30 days longer than usual.
- Even worse: Another 16% say they’re holding them for more than a month.
You certainly aren’t going to sit back and take that.
Finally, some good news: You and your staffers already have all the tools you need to get that money in your bank account instead of your customers’.
All you have to do is put some new twists on these traditional credit and collection tools:
- Personal guarantees, and
- C.O.D. payments.
An unexpected ‘guarantor’
It’s a credit technique as old as the hills: Your company requires a borderline customer’s principal to sign a personal guarantee to protect your cash.
What about turning an eye in-house for payment assurance?
One company we know took a dramatic step and started requiring salespeople to sign a letter personally guaranteeing the customer’s debt.
You wouldn’t do this for every account — just the potentially largest and most profitable ones. And prepare for a lot of heat.
How to set it up: With this "top tier" of customers, give Sales a choice. Either:
- Finance handles the past-due notices, or
- Salespeople can take responsibility for the account.
If Sales wants to take the lead, the individual rep signs a form assuming responsibility for the debt.
People may just take you up on it. And you’ll have to be ready to make good on your promise. One salesperson at the company who tried this wound up on the hook for a $16,000 debt.
That’s enough to cause most people to step back and let Finance do its job.
And it put collections on the right track: This specific company slashed its amount of A/R out more than 45 days by 75%.
Three little letters — big cash flow boost
That’s not the only weapon in the credit and collection arsenal that can be used in a slightly different way to get more of your cash in faster.
Normally, cash on delivery (C.O.D.) is considered almost a punitive measure for customers who have gotten too far out. But it doesn’t have to be. It can be used as a way to protect your company before anything heads south.
One controller told us that it was his sales manager who actually suggested collecting up front.
Would customers stand for it? Were they pushing too hard? It couldn’t hurt to ask!
In tight times like these, you might come out with a new payment plan that includes collecting 50% upon delivery.
It’s best to roll this out at first with a small group of customers. This company was shocked that not a single customer balked. Roll-out may take up to a couple of months, but it’s well worth it. The proof is in the improved cash flow position.