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5 Ways to Prevent Overdue Accounts

Article Post Date
April 3rd 2013 by Steven Gan

Establishing relationships with clients and customers who have bad credit histories may cost you business. However, you can take steps to protect your interests. The following suggestions may help accounts get paid on your terms instead of your customer’s terms.

It’s always a good idea to obtain your potential customer’s credit report before you extend them credit. The reports shows historical payment data, bankruptcy records, any lawsuits, liens and court judgments against a company, and a risk rating that predicts how likely the person is to pay their bills. Even if your prospective customer has little or no credit history, running a credit report is still worthwhile because it will reveal relevant data such as bankruptcy filings, corporate records, fictitious business name filings, court judgments and tax liens.

Remember that if you limit yourself to only doing business with companies with spotless credit records, your pool of potential clients would be quite small! Unfortunately, you often have no choice but to do business with anyone who wants to do business with you. Yet even then, you don’t always have complete control of the terms of your sales agreements. The reality is that your biggest and best clients may want to be billed quarterly and then have 60 days to pay you. You certainly don’t want to cut off those clients.

While you don’t want to destroy any potential or established business relationships by laying down strict payment terms, you must take some control of your account receivables to avoid wreaking havoc with your cash flow. You’re not a bank, after all.

These five steps can help your cash flow without endangering it.

Step 1: Watch for new customers with a bad credit history. You can’t expect that a company or a person with a history of bouncing checks or paying their bills late will change their ways when dealing with you. If you must do business with the chronically late, lay down your credit rules early and firmly, and start the relationship off slowly. Keep the amount of product or services you offer a company with an iffy credit record to a minimum until they’ve proven themselves. And, no matter how much you need the business, never start doing business with another person or company until you have a signed contract clearly stating and agreeing to payment terms.

Step 2: Once you begin doing business, make sure you stamp (hand or electronic) your invoices with the date that payment is due to you. Don’t rely on the customer to look at the invoice date and add 30 days — or whatever your payment terms are — to determine the pay date.

Step 3: Offer discounts for early payment and add interest to late payments. A typical discount is 2-3 percent off the total if the bill is paid within 10 days of the invoice date. The maximum amount of interest that can be charged varies by state.

Step 4: Phone your clients and start trying to collect the day after a payment is due. Never wait! Let them know that you keep close track of your accounts receivable.

Step 5: Until a customer pays their bills, don’t do any more business with them. Do not bend on this rule – you’ll only cause yourself more problems and scuttle any chance of collecting what you’re owed. If you really want to keep doing business with a customer who owes you, insist that any new services they receive from you are COD — cash on delivery.

What if you can’t collect on payments due? Here are some effective ways to get paid by delinquent customers:

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  • About Steven Gan

    Steven Gan Steven Gan was the founder and president of Advance & Associates Co., Ltd. in Tokyo from 1992 – 2004. Advance & Associates was the first company to create and implement the before and after sales total credit risk management product line system in Japan. This business model offered clients a full range of credit risk management products and services in order to provide “total credit risk management support”. Through numerous articles, publications, presentations, and television appearances, Steven Gan greatly deepened the awareness and understanding of the importance of sound credit risk management throughout Japan. Steven Gan wrote the book titled, “The Blue Eyed Debt Collector, His Struggle” (Japanese only) published by the number two publisher in Japan, Shogakkan, which sold over 20,000 copies. Steven Gan established Stellar Risk Management Services, Inc., a credit risk management consultancy, in 2006 to help businesses increase cash flow, expand sales safely, and minimize the risk of selling on credit. In jsut a few years, Stellar Risk has grown to support many clients that are Fortune 500 companies in a wide range of industries. Mr. Gan continues to be a well-known figure in the US credit risk management industry and is a frequent presenter at many trade association conferences. Through the Stellar Journal, a bi-monthly publication to over 55,000 recipients, Mr. Gan shares ideas and informs professionals at all levels in the areas of credit, collections, accounting, finance, and sales on a wide array of credit risk management topics and issues. Steven Gan is a native of Chicago, Illinois, graduated from the University of Illinois with a BS in Electrical Engineering, and graduated from the Thunderbird – Garvin Graduate School with a Masters of International Management. Mr. Gan is also a Certified Public Accountant, Certified Credit Executive, and a Licensed Insurance Provider. Finally, Mr. Gan has been the only American to pass the Japanese Insurance Licensing Exam. See all of Steven's articles…

    You can also visit Steven's Website

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