10/15/2007
Small business approach to customer debt
by James Atkinson, Market Research Analyst
Prompt payment by customers is always appreciated, but for small businesses timely collections can make the difference between success and closing the doors. Poor collections reduce working capital which increase borrowing costs to meet current obligations such as payroll.
One approach is to simply cut off customers who constantly pay late or don’t pay their bills in full. Volume does not translate into profit if funds are not collected within a reasonable period of time.
Another approach is to link the payment of sales commissions with payment performance by customers. If, for example, a customer is 45 days late in paying an invoice, the sales representative’s commission is reduced by 25 percent. This policy motivates the sales force to generate quality sales with customers who pay on time.
Small business owners can learn from other entrepreneurs in their industry how to improve lackluster collections. For more on this topic, read Three Approaches to Reining In Customer Debt, The Wall Street Journal, 24 Sept 2007, B4.
http://online.wsj.com/article/SB119049782264536403.html?mod=djemSBL
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