Show me the money!

So you've hired a superstar salesperson, or you are a superstar salesperson, and your sales volume has picked up tremendously. This is a good problem to have in most instances.

However, what if you've sold on credit to your clients? Can they be trusted to pay you back in a timely manner? Did the salesperson merely sell a lot during a contest that you were having so that they could win? Was due diligence used when making a credit determination?

These are the questions that keep business owners up at night.

Not everyone is going to pay you on time. It's the nature of who we are. So how do we handle this delicate situation with our customer?

The answers are many, and the first question that needs to be asked is this: How long have you had a relationship with the client?

If you've known the client for a million years, gone to his or her daughter's wedding, etc. it's probably best to simply give your client a phone call as a gentle reminder. Provide them an "out" before threatening them. Maybe something like this:

"Hey Bill, just wanted to let you know that we were having some printing problems last month with our invoices and I wanted to confirm that you received yours. Going through my paperwork, it appears that we never received a payment - and it's most likely something on our end."

This provides Bill with the perfect alibi, while at the same time, making him aware that he hasn't paid you yet. It may have been an oversight, it may have been deliberate or it may have gotten lost - or the dog may have eaten it. Regardless, Bill now has an opportunity to deliver the payment on time immediately, or utilize your excuse and make it his own.

Because of your sensitivity to the issue, though, you've not damaged a great relationship.

Let's look at a different scenario. Assume Bill fumbles the ball and tells you "I did receive the invoice, and frankly, we're having a tough run at things right now. I'm hoping you might be able to give me a little latitude this month."

What do you do? Who is your obligation to?

If you're the AP Clerk, your obligation is to your company. You want that money NOW! However, it's probably wise to talk to your boss.

If you're the boss and your reading this, I have bad news for you. You are going to have to go with some creativity to solve this problem.

A.) Is this something that has become a habit? If so, draw a line in the sand and stick with it.
B.) If it's a one time occurence, throw Bill a bone and extend him 15 days for free.
C.) Is this a cue for you to ask what's the "tough run" he's talking about? Odds are good that this is what is really happening. You owe your client a good conversation about business and the business climate you find yourself in. Ask what he suggests you do to solve this dilemma, or how he's handled this situation in the past with his clients. If the relationship is a good one, an amicable solution will follow without jeopardizing a personal relationship.

Now, what if the client is brand new and has no track record? How do you handle a late-payment without killing the contact your salesperson worked so hard to get?

DO NOT COME OUT WITH GUNS BLAZING! Why play hardball with them when you've never collected a dime from them? They owe you nothing anyway, so if you fly out of the gates like Al Pacino in Scarface, you'll only end up with a dead customer and no money in the bank. Focus on the money in the bank.

Instead, place a call to the purchasing agent first and do a little discovery. Make small talk, get around to why you called and find out when you can expect payment? After all, your rep will be over that way in two days, can he pick up the check and bring it back if it's more convenient to them?

Again, place them in the apparent drivers' seat. Allow them to choose their own fate, while simulateneously making them aware that you are all over the account to ensure timely repayment.

One solution to this dilemma is to utilize a factoring company for your billing, invoices, collections, etc.

A factor is a company that will purchase all some, or all, of your receivables at a discount. Based upon the timeliness of their repayments, the factor will often pay $.95 on the dollar or as little as $.80 on the dollar.

Regardless, you should take a good long look at your costs of conducting credit-driven business. You probably have an AR Clerk making a decent wage, maybe some benefits, etc. And you also send out bills, either electronically or through the mail, both attached to your letterhead, using your postage meter and then your time spent going to the bank to deposit checks. Once the payments go 30 days or later, you are owed money, so you send out another round of bills, make some calls, etc. It can be extremely costly.

Sometimes, outsourcing those costs at a 5% discount is worth it considering you get your cash from the factoring company in as little as 5 days upon review of the receivables. Additionally, once a relationship is established with your factoring company, you can often negotiate more advantageous terms.

This cash flow increase can have a dramatic impact on your business model, thus allowing you to go after new clients, hire new sales staff or even make much needed capital improvements to yoru facilities. There are times that using a factor makes you a better risk to a bank when you look for a loan to grow, as cashflows are stronger than if you handled billing on your own.

While it's not the only answer, factoring is a viable option in many instances. Industries that make use of factors quite frequently include trucking firms, large manufacturers, outplacement firms, supply firms or any company that secures government contracts.

Another possibility is to sell your credit card receivables on a monthly basis. Called "merchant lending," this option can be somewhat expensive, but again, selling your credit card receivables frees up time, energy and effort to sell more, expand and continue to focus on the bottom line.

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