Customers come in all shapes and sizes. No two customers are alike. They behave differently in so many ways. In terms of getting payment from small business customers, pay attention to customers who are considered high risk in your collection and credit policies. If you are a small business and, in turn, have small businesses as customers, take care. It doesn’t mean you need to be paranoid and take them off your list as customers, but be aware of the facts.
According to statistics, the survival rate of small businesses is less than 50% after five years of operation. This figure goes down to less than 30 percent after ten years of their operation, numbers which can certainly seem to be discouraging to many entrepeneurs wishing to start a small business. However, for those who have a good idea, solid planning and a reslliant nature they can drill back into the business, there is still a good change of making a break in the small business world.
The credit rating agency, Experian, conducted a survey of 300,000 small businesses between 2007 and 2009. Coincidentally, most of those companies surveyed were during the recession when economy was so bad. All the unfavorable conditions for businesses during economic crisis were common across the nation – bankruptcies, delinquencies, tax liens, among others. Based on the study, small businesses that were weak at the start succumbed to financial woes easily during the crisis as compared to those who were strong enough.
No matter what state the economy is in at the time, small businesses will always carry a higher risk when it comes to financial dealings. Here are some ways you can ensure you get paid if you are dealing with a small business as a customer.
1) If the customer is new, secure a business credit report first before extending terms.
2) Forget step one if it’s impossible to obtain a business credit report because the company is too small or still new. Instead, demand a cash on delivery (COD) payment mode until you get to know the company better and after a few months of good status, you may extend your terms. You may also ask for a 50% downpayment or whatever percentage you can extend to them, depending on the amount of goods and services they are ordering.
3) Offer your customers discounts. If the customer sends an early payment, then this could be a way to reward them with a discount. Propose to them different discount rates on payment terms they are most comfortable with (e.g. weekly, bi-weekly). Secure the payment via any regular format, such as through credit card, wire transfer and online payment facilities.
4) Be aware of bad signs. Your customer is in trouble if your staff aren’t able to contact any of the persons concerned through any of the usual channels. You should be conscious if the customer fails to send in the payment on the previously agreed date. Try to make regular contact through phonecalls and emails to stay on top of the situation, and if they fail to respond then stop any deliveries or services extended.
5) If situation warrants it, make a watch list and take action swiftly. Don’t hesitate to call those delinquent customers within 5 days after missing due dates.
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