Here’s a simple strategy to clean up those year-end
slow-payers before the holidays.
Cash flow is the lifeblood of any business. Without
it your company will have a financial heart attack. Therefore it makes good
sense to have a consistent strategy for collecting your receivables. And while
large businesses generally have a consistent approach when managing their
receivables, many small and medium sized businesses do not.
The owners of small and medium sized business are
usually pretty close to their customers. This can be both good and bad. Good if
the relationship is respected bad if your “friend” uses it to take advantage of
you.
So
What’s a R.I.P?
A R.I.P. is defined by Brad Hams of the book “Ownership
Thinking” as a Rapid Improvement Plan for the financial health of your
business. He calls missed opportunities “cracks in the table” where your
profits can fall. A R.I.P. is an initiative that you and your staff can
implement easily to improve your business right now as well as creating a fun
activity in which all of your staff can participate. An example of a year-end receivable clean up R.I.P.
might look like this:
ACTIONS:
1. Produce
clear, accurate, and timely invoices
2. Ask
for deposits and/or progress payments
3. Implement
a seven day customer service call (seven days after performing your work and
invoicing the job, your customer service dept. will call the client and ensure
they are happy with your work and inquire if there are concerns about the
invoice) This is looked upon by your customer as a pro-active service call, yet
provides you with the ability to discover or eliminate potential excuses for
non-payment of the invoice.
4. Complete
credit approvals BEFORE the order is processed
5. Create
and send (by email) monthly statements to customers
6. Have
the sales team keep track of past due invoices and report on these at a weekly management
huddle, after which the next action would be determined.
7. Customers
that are past due 91 days and longer to be sent to a professional collector
with the view to collecting the funds and retaining the customer.
Key
Concepts
a) A
R.I.P is a tool to engage all employees in improving the performance of one Key
Performance Indicator at a time.
b) R.I.P’s
shouldn’t be difficult to design and can be created in just a few hours
c) Non-management
people should be involved in the design of a R.I.P.
d) Your
organization should have at least one R.I.P in process at all times
e) According
to the author of Ownership Thinking, Brad
Hams, R.I.P’s are powerful tools for a number of reasons aside from profit
enhancement. They also identify process improvements, fund an employee
incentive plans, provide great training opportunities, and are fun!
