Critical Collections:Successful sales is about more than just selling

Critical Collections:Successful Sales is About More than Just Selling

By Peter J. Lamont July 09, 2009

The president of a mid-size kitchen cabinet company once noted that the most important facet of his business is sales. He explained that he employs some of the best salespeople in the tri-state area and that their sales have been increasing even in this economy. In his estimation, product knowledge, persistence and absolute commitment to customer satisfaction have been the keys to his success. And many in the industry might agree. After all, if you don't sell, you don't make money.

But while sales are extremely important, there is another component of business that is far more critical. In fact, when the same sales-driven president was asked, "How are your receivables looking?" he stopped in his tracks and responded, "Well, we have been paid on 60 percent of our sales over the last year." Sales are critical, but collecting payment in full for your sales is paramount.

Unfortunately, far too many business owners think, as did our sales-driven friend, that in order to obtain success, all of their focus should be on sales. Nothing could be further from the truth. You can sell 50 kitchens per day, but if you don't get paid for your efforts, your successful sales strategies mean nothing. So now that we have established that collecting full payment for your sales is the most important element of a successful business, what should you be doing to make sure that your receivables are current?

For most of you, your sales are made either to the individual residential customer or a contractor or building owner on larger multi-unit projects. The techniques and mechanisms used to collect outstanding balances differ greatly, depending upon whether it's a homeowner or general contractor that owes you money.

INDIVIDUAL SALES

For individual customer sales, it is wise to ship or deliver all merchandise with an accompanying invoice. In fact, send a duplicate, as many customers find it helpful to receive two copies, one to keep for their records and the other to send with their payment.

Aside from invoices, it is prudent to send monthly statements listing your customer's payments and all unpaid invoices. You will find some customers may not keep accurate records, even losing or forgetting to record your invoices. Sending statements will also alert your customers that you are aware of outstanding invoices and you expect prompt payment.

It goes without saying that it is critical for you to keep an accurate payment history for each customer. To do so, establish a method to monitor your accounts receivables. One great option is to use small business accounting software. Remember, you need to know who owes you money, how much they owe you and how long they have owed it to you.

TAKING ACTION

To collect your money, you will find that you must also aggressively manage your receivables with consistent collection activity. Following are three tactics that work for general collections:

1. As soon as payment is past due, send a copy of the invoice to the customer along with a notation requesting the payment. When you send out your statements, circle the past due invoices.

2. Generally, a handwritten note on a statement or invoice is more effective than computer-printed messages or past-due stamps and stickers.

3. Call your customers yourself. Explain that you are looking for payment of the outstanding invoices and ask when you can expect payment. Daily calls usually get the customer's attention.

If none of these basic techniques work, you will need to be more aggressive. In cases where the customer refuses to respond to your communications, the following techniques are appropriate:

1. Telephone your customer, demanding a check and threaten to turn the account over to a collection agency.

2. If your customer claims to have no money, ask for a post-dated check. If the check bounces, contact your attorney, as there are civil and criminal penalties for passing a bad check. Typically, threats from an attorney will help you recover the money.

3. Pay a personal visit to the customer and demand payment.

4. Finally, if all else fails, file a lawsuit for the full amount owed. If you have a good sales contract, you may be able to demand interest and attorney's fees. While smaller collection matters can be handled pro se, without an attorney, moderate to large amounts should be handled by a competent attorney.

Whether you decide to deal with collection issues yourself or with the assistance of an attorney, remember that your success in business is driven by money in the door, not solely by making sales. The two most important actions to take after you land a sale are (1) keep meticulous and accurate records for that transaction and (2) take immediate action when the customer fails to timely pay an invoice. The longer you wait to collect a paid due account, the less likely you will be to recover the money.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.