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Small Business Debts: Developing An Internal Debt Collections Policy
Author : Chris Le Roy
Submitted : 2011-07-16 03:53:13 Word Count : 684 Popularity: 2
Tags: business debts, small business debt, get paid, small business debts
One of the key activities small business owners need to assess when developing their small business is what their internal target debt collections policy will be. This policy is designed to assist the small business owner their team, in know what activities need to be undertaken each month to ensure their business remains viable.
To improve a small businesses debt collection targets sometimes the small business owner may need to provide financial incentives or rewards to their staff to ensure the targets are met. Debt collection is one of the most difficult and challenging areas in business so it is fair to reward staff if they do a great job.
It is very important when developing your debt collections target that you also develop your debt recovery procedures. The procedures should set out what you consider are appropriate process they should follow to ensure you get paid and don't upset customers due to overzealous behaviour by your staff.
Over my 20 years of being a consultant and running a number of businesses I have often been confronted by new staff being overzealous in the debt collections. For example calling me the day before a bill is due demanding payment. These types of actions will only upset your customers and can seriously affect your good will with the customer base.
You should also be aware that very often staff will go for soft targets or customers rather than the most pressing debts. The longer a debt ages the more difficult it will be to collect.
Collection Targets are developed in terms of the age of the debtors. Here is a sample of the debtors age targets:
Target 1: To have 50% or more of debtors paid within 30 days of the invoice date
Target 2: To have 30% or more of debtors paid within 60 days of the invoice date
Target 3: To have 10% or more of debtors paid within 90 days of the invoice date
Target 4: To have 10% or less of debtors collected after 90 days of the invoice date
Whilst every small business owner tries to develop a customer base in which there is no bad debts, in reality this will not happen. All small business owners should try to set a target of no more than one to two percent in bad debts however the reality is that the amount of bad debts you have is dependent on the industry that you operate in. Some industry's are more prone to bad debts than others.
Setting a clear target for debt collection in your business will help ensure that you can maintain a positive cashflow within your business.
Author's Resource Box
Chris is the owner of One-on-One Professional Business and can help you boost your business success. If you are looking for more great business articles then visit his business repository. If you have staff who need first aid training then visit his website to help you get them qualified today.
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