reimbursement

The expectation of reimbursement seems contradictory. How can you make money from what you spend? There are several areas we need to target and we’ll explore each one in this series. The first is to use your credit guidelines wisely. Do you invoice your customers regularly and promptly? Your customers can’t pay for uninvoiced items or services, and the longer it takes to get an invoice, the more likely it is that payment will be delayed. While you’ve paid suppliers and payroll, you’re awaiting payment and possibly funding your operating expenses with interest-bearing loans.

Make sure you clearly describe your terms and collection policies to your customers. Most customers assume a term of 30 days unless you tell them otherwise. And think about your terms before you give customers credit. How long can you afford to bear the cost of borrowing? And remember that costs include all of the costs involved in producing the product or service you’re selling and the costs of conducting those costs. Even if your cash flow allows you to lend without borrowing yourself, there will be a cost when someone else uses your money, and those costs should be added to the cost of selling.

Do you offer a discount for early payment?

Will your margins allow you to offer this discount and still make a profit?

Can you track when a discount should be granted and will you re-invoice that discount if payment is not received on time but the customer still claims the discount? These are all important questions to answer before you decide to offer credit to your customers. If you don’t take the time to answer them, you’re risking your cash flow, your profits, and maybe your business success.

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When you decide to offer credit to your customers, it is very important to have an easy-to-maintain accounts receivable aging process. This document is standard in almost all computerized accounting systems. It will split your outstanding receivables into multiple categories based on the age of the invoice date. The most common categories are recent, 30 days, 60 days, 90 days, and over 90 days. And you must be willing to make the phone calls or send the letters asking for arrears. This is an area where many entrepreneurs hesitate. And please remember that there are laws that prevent you from making threats, using unacceptable language, and harassing people. The best way to deal with defaulting customers is to politely explain why you are calling or texting, asking if there is a problem with the product or service they received, and if there is a solution to fix it problems exist. If the customer doesn’t have the funds to pay in full at this point, you can suggest a payment plan they can stick to. And get it in writing with their signature, along with a clear explanation of what the consequences of non-compliance will be.

Of course, you can avoid all of this by carefully checking their credit references. Ask for the name of their bank and at least three business references with addresses and account numbers. And follow their references. Check if their references are genuine (for example, are they listed in the phone book). Call their references and ask how long they’ve been a customer, what their payment experience is, if they’ve ever paid late. There are also services that offer a credit report check for a small fee.

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Providing credit to your customers can increase sales if you’re willing to put in the work necessary to keep your costs down and your customers’ payments on time.

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