The structure of the sale is an important factor. We often use aggressive sales and marketing tactics like easy financing and delayed payment terms to make the sale. We must consider what happens next and the customer’s ability or willingness to pay. Smart practices for improved cash flow can give you an edge.
Incentives are often considered in two ways. The carrot or the stick is a common phrase when describing incentives. That phrase refers to positive or negative reinforcement to get the behavior result that you want. In this case, the behavior you want is not only prompt payment but repeat business from a loyal customer. If that is your goal then you must consider using positive behavior reinforcement. A good example of this type of motivation is a discount for early payment or free expedited shipping.
Shortening the time between the stages of a new sale can often increase the chance of prompt payment. It is likely that the customer is most positive about his new purchase within the first 90 days of purchase. This is the most opportune time to get a positive resolution to a payment request. Once the customer begins to regret his purchase or loses that “new car smell” the less please he is about the delayed terms. Encourage prompt payment through frequent customer contact and proper relationship management.
There are some customers that you do not want. Some customers require more service than you can afford to give or are perpetually late in payment. Each situation creates a cost and resource burden on you as the vendor. You can reduce the burden on your business by selecting your customers wisely. The credit rating of your business to business clients is an excellent way to rate your customer relationships. Beyond the credit rating, you can also look at a specific customer’s payment history with your business. A customer that is repeatedly late with payment is a customer that might be better sent to your competition.
The Breviary: Cash is king. Put payment collections as close to the point of sale as possible. Lessen the burden on your business by being selective on how you extend creative payment options. My favorite credit management source is at this link.
Cash is the lifeblood of your business. Improved cash flow means a healthier business. Better credit management means better management of your customer base and your sustainable success.
As entrepreneurs, we often obsess about what we do to get things sold. The smart business strategist also considers what happens after the sale.