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By Frances McGuckin

While some businesses enjoy the luxury of cash transactions, for most businesses, it’s expected that you offer some type of credit arrangements. Last month I discussed setting credit ground rules; now let’s take a look at how to monitor and manage the lifeline to your business – cash flow.

Instigating a credit monitoring system is imperative to your financial health. Businesses close their doors overnight; the process of trying to recoup bad debts is time-wasting, frustrating, and often futile. Your goal is to prevent an account from becoming a bad debt, at the same time, training customers to respect your terms and to pay promptly. You need to religiously use a daily and monthly system, so here’s some tips from Big Ideas for Growing Your Small Business.

Develop a daily collections system
The more accounts you carry, the more crucial that you use a daily collections system to keep the checks arriving and the cash flowing. Here is an effective daily routine.

  1. Write up the bank deposit daily.
  2. Note and follow up any anomalies, such as short-payments or discounts.
  3. Mark each check off your aged receivable list.
  4. Review the aged receivable list for overdue accounts.
  5. Phone customers with a gentle reminder.
  6. On the aged receivables list, note the date that they promised to send you payment.
  7. If the check has not arrived by that date, make another phone call.
  8. Note any comments or promised payment dates on the aged receivable list.
  9. If there appears to be a payment problem, start a collection file for the account.
  10. If you are concerned, notify shipping to put a hold on all orders.
  11. 11. Notify the customer that shipments are on hold until the account is brought up-to-date.
  12. 12. If it is obvious that the account is not being paid, be prepared to take further action.

Month-end receivables procedure
1. Close off the month: Complete month-end closing procedures as soon as possible as on the first of each month, all debts become a month older. Be sure that all sales invoices, credit notes, bank deposits and journal entries are posted, then run your month-end reports.

2. Update the aged receivable list and send statements: Prepare the aged receivable list, itemizing each unpaid invoice by customer and amount into current, 30, 60, 90 days and over. Review any bank deposits received since the first of the new month. Cross these payments off both the aged analysis and the customers’ statements. Before mailing the statements, check each one for accuracy and account status.

3. Prepare account reminders: If customers need a gentle reminder, use a self-inking stamp with the message “this account is overdue.” Personally signed, polite and to the point hand-written messages to customers you know is quite effective. “Dear Steven, I noticed your account is a little overdue. Is there a problem? Please let me know. Thanks, Jeff.” Remember the squeaky wheel.

Include a thank-you message on your statements for checks that may cross in the mail. Monthly statements help both parties keep better records and often alert customers to missing invoices or account problems.

4. Start collections: Once the statements are mailed, review the aged receivable list, starting at the 90 days and over columns. Call each account, discuss the overdue amount and note any promised payments or other information. If customers request invoice copies, fax them immediately and note this on the list. Work your way through to 60 and 30 days overdue until everyone is called.

What if your customers don’t pay?
There will be always be customers with cash flow difficulties. If they are honest with you, discuss an alternative payment plan. If messages are ignored or you are worried about their financial stability, send a first “account overdue” letter. Now you have started a paper trail. If there is no response, send a second letter. You may have to resort to a legal letter, using a collection agency, or filing a small claims action.

Some customers may want to pay but don’t have the money. Never ship goods until satisfactory arrangements have been made as it’s no use risking further debt. If the customer promises to send postdated or regular checks, and honors their commitment, you decide: do you allow further credit or do you keep them on a C.O.D. basis? Only you can make that decision.

You work hard for your money and are not a financial institution for your customers; don’t let them use and abuse your cash. Protect it, nurture it and collect it when it’s due.

Frances McGuckin is an award-winning small business expert, motivational business speaker and best-selling author of Business for Beginners and Big Ideas for Growing Your Small Business, the U.S., Indonesian and Saudi Arabian editions are due for release in 2005. She can be reached at 1-888-771-2771, e-mail at

This column is available for syndication. For information, contact Frances McGuckin at

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