It is no secret that our economy is suffering badly. Even some of the basic items to run your business simply cost too much, and everyone has to cut back. As a result, your business is suffering. So, how will your business survive when so many are closing their doors? Some simple, practical changes can make the difference in affluence or bankruptcy. Here are a few simple tips that I recommend to all of my clients to protect their receivables:
1) Require a Credit Application
Whether your clients are other businesses or individuals, if your client has an open account with you in which you are supplying a good or service prior to getting paid, you must first require a completed credit application. The credit application should include:
* Full legal name
* Social Security or Tax Identification Number
If your client fails to pay their account, your costs in collecting will be much lower if you have adequate information.
2) Require a Personal Guarantee
If you enter into contracts with other companies, you should always require a personal guarantee from the person acting as principle of the company. If your client fails to pay on the account, or otherwise breaches your contract, the principle is personally responsible to you as well as their company.
3) Receivable Turn-Around
Re-structure your companies billing cycle to issue invoices immediately or, at the very least, monthly. Also, shorten the due-date. Your companies accounting will operate much more smoothly without a 45 – 60 day lag in receivables. You will also be able to more accurately estimate your income for operating. This also helps companies that can use Mechanic’s liens to recover money owed by being able to notify and file within the deadlines of the statutes.