Is your business model to blame for your poor collections?

If your customers are struggling to pay you on time, who is to blame? Is your collections process failing or do you have a bad business model that is causing issues for your customer? Just having enough customers to keep your distribution center busy doesn't mean you are actually making money, it means you are shipping products and waiting to get paid. Every business has varying degrees of how many customers actually make their payments on time but unfortunately for many businesses about 20-30% of their customers fail to pay their bills.

What can make the biggest difference with your collections process? It starts with your business model. When you put together a business model, you will include things such as how you are planning to make money, how you plan to sell your products, and what your expenses will be. If you do not have a plan as to how you are going to make a profit, you may find it quite challenging to acquire the money from your customers in a timely manner.

A big mistake a number of companies make is upgrading their prices to try and compensate for the customers that are not making their payments in a timely manner. Many of them feel that increasing their prices on the customers that pay, will fill in the cash flow gap from the other customers. This is actually a terrible strategy as you are essentially punishing your good customers for making their payments on time. This is a quick way to lose customers in a hurry.

What does your business model say about your collections process? How are you collecting money from your customers? Are you asking them for a deposit at the time when they order your product? Asking for money up front, say 30-50% of the total invoice amount is a great way to acquire the money you need. Another great way to close the cash flow gap is by setting up automatic transfer from their bank or credit card account. This way you know you will be paid by a certain date and for a certain amount. Don't just invoice the customers, make sure they are making deposits and that they are actually focusing on paying their accounts by enrolling in a payment plan.

To help ensure that customers are making their payments, assign the collection job to one of your employees with good people skills. If you have ever been bothered by a collections officer from a credit card company, dental office, or other place, take some lessons from them. They know how to collect the money as they are direct and clear about your payment options. They don't let you get off the phone without paying SOMETHING on your bill, even if it is only $25 a week.

Having options for your customers is a great way to close the cash flow gap. You will easily be able to show your customers that you are here to help them and you are working around their needs. Let them see that you can set up payment plans, to make it easier on them to meet their payment obligations. As they see that you are trying to help them, it will make them respect your company more and they will have a desire to work with you.

Here are some other great ways to fix your business model so you can have smooth collections:

• Daily rate. Charge the customer a daily rate for the services you provide instead of an hourly rate. Having a flat rate fee is easier for some customers to understand.


• Enrollment plans. This allows you to create payment plans, which will ensure you are paid by your customers.


• Subscription fee. Using a monthly subscription, you can charge their account each month on the same day so you know when you will be paid.