How can I manage debts to customers in my business?
Customers take debts but refuse to pay. Strangely, most of these are my friends. The one that takes a debt disappears.
Business is hard lately and everyone would love to delay payment where they can. Most corporate companies pay after 30 to 120 days. Imagine the stress you have to deliver on receipt of Local Purchase Order (LPO) yet the money will come after a month or two. So, most have to borrow from money lenders to keep going which makes their margins smaller because of the cost of capital.
Debts are a challenge business has to deal with all the time. If you run a small business, it’s important to have a debt recovery plan with well-set protocols for managing debt otherwise, you can quickly become insolvent.
For a small business, I would advise you to deal on cash business. It’s easier for a customer who you denied a debt to come back than one who owes you money. I have been selling beer for 9 years and I know even the most loyal customer can disappear forever once they have a debt.
Take for example someone that owes you 350,000 but they have 100,000 UGX and want to drink. Would they come to you who has them at -350,000 (negative) or go to another bar where they are not seen as debtors? So, you would rather not give out goodies on credit than live to lose your customers and money.
Here are a few tricks to keep the debtors book small;
1 – Make the approval of debt bureaucratic. It can be the manager and accountant to sign or yourself. Since you won’t be available, debts will be hard to give and the customer will understand they couldn’t get credit because you were away not because you refused.
2 – Keep a debtors’ book which you have accessible to other customers. People hate to be seen in a debtor’s book. I see at the Golf club debtors are regularly posted on the notice board. You don’t have to go to the extremes. Just put them in a book kept on the desk. Many will refuse to take a debt if it involves signing in that ugly book.
3 – Have a No credit policy or Cash basis service policy for all staff. People get used to it and it ceases being an issue.
4 – Ensure debt is attributed to the staff and not yourself. If someone buys soap in your shop, record the debt on the shop keeper and limit the debts to the salary of the shop keeper. That way, the limit is set and should the customer fail to pay, you have a way to recover it.
5 – Make sure the debtor signs the paperwork at the time they are taking debt that will assist you to legally recover should need arise. Ensure you have an LPO for example, delivery notes, signed copies of the invoice, signed commitment to pay etc. This will come in handy, should there be need to go legal. On the other hand, always ensure you get goods on credit from your suppliers. That allows you wiggle room and you have cash-flow which is the fuel of any business.
