By: Candi Pavliscak, Sr. Vice President, Hennessey Capital

In today's economy it is more important than ever to focus on collections.  When sales are slow, companies tend to focus on increasing business and securing new contracts, however it is key to stay just as focused on managing collections.

The popular expression "Cash is King" rings true.  Sales don't pay bills, cash does.  While increasing sales is a critical part of building a successful business, if you aren't being paid for your product or service, you are causing your business more harm than good.

There are some steps small business owners can take to manage the collections process and positively impact the bottom line.
 
Before you make a sale or enter into a contract, you should understand the value of your product and the competition.  It is important to know your customer and your "customer's customer." It is critical to be aware of end-users ability to pay your invoice. Can they honor the terms of the PO and will you only be paid after your customer gets paid?  For example, if you are selling your product through a distributor to a large retailer, you will likely be paid once the distributor gets paid.  When evaluating the risk, it is the distributor not the retailer who is responsible to pay the invoice, so you will need to look at the strength of the distributor. Balancing sales with collection is looking at risk versus the reward. As a business owner, you should ask yourself "how much am I willing to lose?" and "how many 'good' sales do I need to make up for the 'bad' sale?" Learn more