Five Tips to Improve Collections in 2014
By Ed Avis
Most reprographics shops offer generous terms to their customers, and that’s just part of doing business. But time is money – every day you trim off your collectibles means more profit in the bottom line. Here are five ways to improve your collections this year.
1) Assume that new customers will pay in cash. Extending 30-day terms may have been automatic in the past, but that doesn’t mean you need to continue doing that now. For example, a large reprographics firm in Chicago discovered that many of the new customers they were finding for their large-format color work are used to paying for everything with a credit card or COD. Why extend terms if your customers aren’t asking for it? Cash is king; if you cut your collections period to zero, you’ll be amazed at the improvement to your bottom line.
2) If you can’t get cash up front, at least get a deposit on larger jobs. Bob Roperti, president of Jiffy Reprographics in Clearwater, Florida, asks for deposits on large individual projects. “Like the $14,000 printing project we got in December. The client allowed a 50 percent deposit to his corporate card up front and the balance on completion,” Roperti says. Having a 50 percent deposit does three things for your collections: It instantly reduces your receivables balance by half; it provides a psychological incentive for the client to pay the balance, since he already has an investment in the project; and it makes it easier for the client to ultimately pay in full, since the cost is broken into “smaller bites.”
3) If you do extend terms, offer the 2%/10 days option. This might sound counterintuitive – why would you give up the 2 percent? – but if you do the math you’ll see that the value of having your money in 10 days rather than 30 days (or longer) is worth the 2 percent. Think of it this way: If you consistently had cash on hand 20 days earlier to pay your own bills, you could use your own credit card or line of credit proportionately less, and you might be able to take advantage of your vendors’ 2/10 terms or other special cash offers. Would that be worth the 2 percent you’re giving up? In most cases, yes!
4) Make friends with the people who write the checks. Your salespeople already know that relationships are important in sales; the same goes for collections. First, find out who should get the invoice – is it the principal of the firm, the bookkeeper, or an outside CPA? Next, make friends with that person so that you can pick up the phone and chat if a bill is past due. And if they do a good job, let their boss know. “Pass compliments back to the principals of the firm when their payables person is accommodating,” Roperti advises.
5) The squeaky wheel gets the grease. When a client is late in paying, gently but persistently remind them. Make regular calls each time the client is late, so they know that unless they write the check, the dreaded phone call is coming. It’s good to know if the late-paying client has work in your shop, Roperti says, because then you can remind them that you meet their requirements and expect them to make timely payment in return.
The main thing to keep in mind is that cash is the lifeblood of your business, and every day you shave off your collection period will add dollars to the bottom line. If you keep that in mind, you’ll realize that improving your collections is just as important as any other part of your business.
Want more tips on accelerating your collections? Click here for a list of links to other articles on this topic.