- Analyze the customer collection deadline
To effectively protect yourself against customer risk , you will need to identify the time required to collect your receivables and understand the origin of the overruns.
But above all, let’s clarify some notions.
1.1 What is a customer claim?
Customer receivable, definition:
- This is all the amounts due to a company by its customers.
- They are counted from the moment the goods or services have been provided to the customer and the invoice has been issued but not yet paid.
- The need to manage customer receivables comes from the cash gap that is created when a payment period is granted to its customers , but that it settles its suppliers faster.
- From the moment you grant a payment deadline to your customers , this represents a customer risk. Indeed, they can make the choice to favor their own cash to the detriment of yours, by deferring the payment of your bills.
- The risk of non-payment is even greater when the down payments are small.
1.2 Determine the actual collection times
we advises you to make a chart of follow-up of your payments customers , by compiling all your overtaking of deadlines in an excel matrix.
For example, for good visibility, you can summarize in an excel table:
- the amounts of each invoice,
- the payments received,
- the settlement dates stipulated in the contract,
- the actual payment dates,
- the number of days of difference …
This list is not exhaustive. But such monitoring already gives you a good idea of your outstanding clients and possible dysfunctional situations.
1.3 Understand the origin of the overruns of the customer payment deadlines
The causes of overruns of customer payment deadlines are multiple. It can be among others:
- Of an oversight on the part of a client not very organized
- A financial failure of the company (in this case, you are interested in the causes of the financial difficulties, to evaluate the customer risk that you incur)
- Invoice that your customer disputes the payment, in case of disagreement on the services provided (quality problems, delivery delays …)
- From a client in bad faith, this can happen.
In any case, it is always better to look for an amicable solution for the outstanding customer through a commercial negotiation. This is to avoid litigation and often expensive and lengthy court proceedings.
For example, you can offer your customer overpayment a payment by split installments.
- The prevention of customer risk
Getting paid on time is one of the entrepreneur’s challenges …
To avoid the risk of unpaid bills , your online accountant recommends the most suitable actions for very small companies:
- Start with prevention: check yourself upstream the ability of your prospect to honor its financial commitments,
- Set up strict procedures and monitoring tables,
- Apply a customer recovery policy ,
- Monitor your cash flow.
2.1 Investigate your client before signing a contract
To minimize customer risk , the first prevention solution is to learn about the companies you work with.
When you are about to sign a sale with a new customer, you need to decide between your business need and your financial sense. During negotiations, try to get as much information as possible about the financial situation of your potential client.
How to check the creditworthiness of a customer?
Conduct a small solvency survey to get to know your clients before establishing a business relationship.
2.2 Sensitize your sales teams to customer risk
As a manager, it is also important that you make your sales teams aware of the importance of the client .
A sale is only finalized when it is paid, so it is important that your sales representatives are also on the lookout for any signs that could indicate a risk of non-payment .
Eventually, think of making your sales people accountable by basing their commissions on the amounts collected, and not on the invoiced amounts. This may encourage your team to negotiate shorter customer payment terms .
But be careful:
- The disadvantage of this solution is that your salespeople may be seriously unmotivated in case of nonpayment.
- This calculation base must appear in the contract of employment of your sales representative (or in an endorsement).