11/ 20/ 2006
by Jeffrey Moses
Save headaches and streamline cash flow
Here is a business axiom worthwhile to follow: Arrange payment schedules during, not after, the initial sale. Doing so can essentially eliminate late payments, streamlining cash flow and letting you focus on your business instead of on collection. This is especially important for a small company that can't afford to allot employee time to calling in overdue payments.
Setting up payment schedules should be a natural, systematic part of every sale. Your sales representatives should be prepared to suggest schedules, writing them into the sales contract. Depending on products sold or services provided, payment terms include:
- All charges, extra charges, delivery costs, installation costs, taxes, total amount, etc.
- Initial down payment (as a percentage or exact dollar amount)
- Dollar amount due on shipment
- Amount due on delivery
- Payment schedule for remaining amount due (for example, balance in 90 days)
- Charges for agreed upon follow-up services/repair not covered by warranties
- Amount due annually for warranties or service agreements to remain in effect
When these terms and any others that may apply are written into the sales agreement and signed by the customer rather than given to him or her on a separate document, the customer cannot claim at some future time that the terms were either misunderstood or not agreed upon at the time of sale.
All down payments and follow-up payments should be noted systematically and filed. It's preferable to keep a separate file for each customer. That makes it convenient to include copies of checks and note payments on the original sales contract or on a payment sheet stapled to the contract.
You may decide to send out reminder invoices as payments become due. Work out schedules with your bookkeeping staff so that notices are sent in a timely way. It's
vitally important that invoices go out in time and are accurate. Don't let customers put off payment with the excuse, "The invoice was for the wrong amount, and I haven't had time to get back with you."
When contacting customers who are overdue on payments, always refer to the initial sales contract and the ongoing log of payments. Keep a record of letters and/or phone calls made for collection. When your records are complete and accurate, and when terms of payment are made an actual part of the sale agreement, it will be harder for customers to come up with excuses for missing or making late payments.
