For many businesses, the first sign of a weak economy isn’t necessarily lagging orders—it’s often lagging payments. When economic worries are on the rise, businesses like machine shops typically experience the pass-along effect of their customers’ slowing accounts receivable. Even the best customers may delay payment by several days, while others may put off payment even longer. For shops facing hefty labor costs and the rising price of materials, these delays can add up quickly.
According to the latest figures from the Small Business Monitor, a semi-annual survey of business owners conducted by American Express OPEN, an increasing number of companies are feeling the effects of delayed payments. In the latest survey, 24% of small business owners reported that their accounts receivable were too high—nearly double the 13% reporting this issue last fall.
David Shapiro, vice president for American Express OPEN (www.open.com), the nation’s leading issuer of payment products for small business owners, offers the following tips to beat the trend of a slowing collection cycle:
Get the most from your money by delaying your own payments as much as possible, without paying late. You don’t want to become part of the problem, but do make the most of the terms vendors offer.
Give customers options that will promote quicker payments. Allowing customers to pay with credit cards, for example, provides your business with cash faster and allows customers to take their time paying the credit card balance. For repeat customers, offer a small discount for pre-payment or early payment.
Look for ways to improve your collections process by understanding your customers’ billing preferences and procedures. Be certain your invoice contains all appropriate information, such as your customer’s purchase order number or your vendor number, and be sure to send the invoice to the appropriate contact. Mailing to a wrong address or to the wrong contact can add days to your wait.
Designate or hire a reliable bookkeeper or accountant who works on a contract basis to handle accounts receivable functions. By allowing this person to approve credit, make collection calls, receive payments, and make deposits, you can focus on growing your business while someone else handles the legwork of maintaining healthy accounts receivable.