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Neediness Can Lead to Bad Paying Customers
Neediness can lead to bad paying customers which can, in turn, lead to a serious financial crisis.
We all want customers, and we generally want lots of them. In our haste to build up a customer base, our credit control can go out the window. I have owned several businesses that have nearly been sent broke because people wouldn’t pay their accounts. And I don’t blame them; I blame myself for not being tougher about giving them credit in the first place.
At the end of the day, if I don’t get paid, I can’t pay other people.
It’s the classic vicious cycle that is very common in business. If you run a business where people pay you on the spot, you are one of the lucky ones. If you run a business in an industry that generally works on invoices and accounts, you need to be very careful.
The point is that we need to be careful about giving out credit in an attempt to win the business. Of course, the majority of businesses are excellent at paying their accounts. They are not the ones to worry about. It’s the others who are slow, or perhaps not trading very well, who are the concern.
Do your research.
If you give credit, you should have a system in place to check the applicant to make sure that they are good at paying their bills.
Even the smallest business can have a credit check system in place.
A simple form asking for several trade references is really all you need. Many companies now ask for a director of the company to sign a guarantee. It’s up to you.
If we are approached by a new client for credit, we ask for several trade references and we always check them. We also ask other business associates if they know of the client and if they know much about them. If they check out, we will extend credit. If they don’t check out, we ask for payment up-front. We generally ask for a 50 percent deposit from all new clients as a matter of course, to ensure that costs are covered.
Explain payment terms clearly.
Another important issue with extending credit is to ensure that your payment terms are clearly explained. If you are issuing a 30-day account, spell this out. If it’s a seven-day account, make sure that the customer knows and acknowledges the fact. They may not be able to work to such a short payment time (often the case with large companies), so you will need to make another arrangement.
Frank, open discussions about money and payment terms in the early stages of a business relationship will avoid problems in the future.
Remember that a company may be trading well when you start working together; they pay their bills on time and everything is fine. Then they start slowing down and 30 days turn into 60 days, and 60 into 90. Be aware that this is a warning signal that there may be a problem and you need to communicate with them to ensure that your money is safe.
At the same time, if you’re working with a customer that has been doing business with you for a long time, they may just be going through a tough time and they might need you to help them out. That is then up to you. I’ve certainly been on both sides of this scenario.
Avoid bad paying customers from the outset.
Some businesses, when they have their credit cut, change suppliers. A good tip that I have read in the past is that if you suddenly get a new customer for no apparent reason, be careful that it isn’t because no one else will give them credit.
Do your research to prevent pad paying customers from the outset. Set up clear terms and be tough about giving them credit in the first place. These measures will help you choose trustworthy clients you can rely on.
Originally posted on inc.com.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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