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With all the uncertainties in the world due to COVID-19, small businesses are struggling to stay afloat. Those with low cash reserves are especially vulnerable. Many of these companies won't survive, the ones that do, know they must focus on managing their cash flow now. Changing the way your company handles collections can significantly improve your cash flow now and prepare you for future issues.

How to Handle Collections

No one wants to be in charge of collections, especially when you know your customers are struggling. However, getting paid keeps cash moving through your business. Outstanding balances can impact your business negatively. Implementing a solid collections strategy can help ensure you will get paid on time, no matter what the economic situation.

When calling a customer regarding an overdue balance, there are a few simple steps you want to take:

  • Be firm, but friendly

  • Make collecting as minimally stressful as possible

  • Never end a call without a confirmed payment date

  • Be prepared to overcome objections

Make sure you explain the next steps to the customer to avoid confusion. Whether you are setting up payment arrangements or expecting payment in full, end the call by restating the confirmed payment date. Also, remain friendly, these are uncertain times for everyone, a little kindness goes a long way. Remember, once all this is over, you want this company to continue being a customer.

Overcome Objections

No matter how you approach the situation, you will probably run into an objection or two while trying to collect payment . Currently, many businesses are trying to figure out how to stay afloat and will say they aren't paying anyone. If you run into this objection, let customers know you accept credit cards and if you are comfortable with it you can discuss payment plans.

Start Your Collections Strategy Early

From the courting process to onboarding, your customers should be aware of your collections process.

Put your Policy in Writing - Make sure your proposal and contract have a section dedicated to your credit/collections policy. Include payment terms outlining when the balance will be due and what late fees will be applied if payment is received late.

Ask for Credit References - Don't let a customer's past credit issues become your problem. Make sure before you start working on an account, the customer can pay you. Do a background check and review their credit rating. If you do work for people that can't pay, it can affect your ability to make payroll later down the road.

Take 50% Upfront - We a 50% deposit before beginning any job, but depending on your profit margin, you can be flexible with this number. Your main goal is to cover labor and material costs before you begin work. Communicate this with your customers, let them know what a deposit ensures you can continue to provide the level of service they've become accustomed too.

Options are Abundant

You have a lot of options for getting paid, but sometimes they don't work, and you get stuck with an unpaid invoice. If you have multiple unpaid invoices from the same client - consider firing them and then look to write it off, so your accounts reflect the lost income.

Make sure you have a signed contract, keep detailed records, and ask for payment upfront. Work on establishing strong client relationships, which can help extinguish a potential problem in its tracks.