(4) The Best Ways To Prevent Overdue Accounts

The best way to prevent overdue accounts is to avoid doing business with customers who have bad credit histories.

"If it were only that simple," you say. But if you limited yourself to doing business only with companies with a spotless credit record, your pool of potential customers would be quite small. And unfortunately, as a growing business or out of competition, you often have no choice but to do business with anyone who wants to do business with you. And even then, you don't always have complete control over the terms of your sales agreements. The reality is that your biggest and best clients want to be billed quarterly and then have sixty days to pay you. And 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 harsh or 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.

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 cheques or paying their bills late will change their ways when dealing with you. If you must do business with the habitually late paymasters, 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 a bad credit record to a minimum until they've proven themselves worthy. And no matter how much you need the business, never start doing business with another person or company until you have signed a contract clearly stating and agreeing to the payment terms.

2. Once you begin doing business with someone, make sure you stamp 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 thirty days - or whatever your payment terms are - to determine the payment date.

3. Offer discounts for early payment and add interest to late payments. A typical discount is two per cent to three per cent off the total if the bill is paid within ten days of the invoice date.

4. Phone customers 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.

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 on doing business with a customer who owes you, insist that any new products or services they receive from you are c.o.d. - cash on delivery.