You’ll never have a product or price advantage again. They can be easily duplicated, but a strong customer service culture can’t be copied.
~Jerry Fritz
If you have followed this column for a while, you know that one of my favorite topics is customer service. A business must focus on this in order to be successful.
Recently, I was able to attend a customer service seminar at the Ritz Carlton in Phoenix. This was by far one of the best seminars I have ever attended -- not only because of the topic, but more importantly because we were able to live the customer service experience at the Ritz 24/7. The Ritz makes the customer the top priority for each and every staff member both through the hiring process and continuous training. I learned so much that will be the subject of future columns.
One of the things that is so powerful about the Ritz Carlton is that each employee carries a card that states, “We are ladies and gentlemen serving ladies and gentlemen.” This one simple sentence clearly says that how we interact with our customers should be no different than how we interact with each other. Time after time I witnessed exceptional civility between the employees as they worked together.
Each Ritz employee is so thoroughly trained in customer service that it is almost as though they have radar implants that allow them to anticipate each guest’s needs before they know what they want. At the Ritz, they would never ask a client if they would like an umbrella when they see it is raining. Rather, they would go out and hand them an umbrella. It is a subtle distinction, but it is an important one when trying to anticipate what a customer wants.
One classic story told at the seminar was about a maid who was cleaning a guest’s bathroom when she noticed that all of the toothpaste had been squeezed out of the tube. While the hotel provides house brands for those guests who forget to bring toothpaste with them, this maid went to the drug store across the street to buy the guest’s identical brand. She left the toothpaste with a note on the counter by the sink. This is great customer service!
I think staffing at the Ritz is critical as the staff is ultimately responsible for delivering exceptional customer service. For every open position, the Ritz takes ten applicants and interviews each candidate at least five times before making a job offer. Not only does the Ritz value its existing employees, but it knows that the heart of customer service is getting and keeping a great staff. In fact, turnover at the Ritz is approximately one third of the industry average.
Now go out, evaluate your customer service and make sure it is the best it can be. Customer service does not cost. It pays.
You can do this!
Monday, November 2, 2009
Monday, October 26, 2009
Learning vs. Training
The most important object in Boy Scout training is to educate, not instruct.
~Sir Robert Baden-Powell
One thing that every business needs to work on is upgrading the skills of their staff. This is critical for several reasons. New technologies are constantly emerging, people are promoted or are given new responsibilities, and existing skills need to be reinforced and tweaked.
Most businesses these days talk about training, and many have entire departments dedicated to training their workers. However, I think the emphasis on training is misplaced. Rather, the focus should be on learning, and many larger companies are now changing their training departments to learning departments. While this might just seem like a subtle change in wording, I can tell you that it is much bigger.
With most training programs, the emphasis is on the trainer who disseminates information to participants. It is the trainer’s responsibility to get the material across. Training is simply an event that occurs when staff members attend a training session. Learning, on the other hand, is an internal event. It transfers the responsibility to the participant. It is now up to them to understand and master the material. Between training and learning, the focus shifts from teacher to student.
I am currently giving a seminar to a large financial institution on how to be a great manager. I have told all of the participants that I am not there to train them; but rather, that I am there to facilitate the learning process. The outcome of the seminar rests on them learning the necessary material. It is their responsibility to master the material, and not mine to train them. This is a big shift in orientation, but it is one that is vital in business.
This new philosophy requires that each participant comes into the learning environment with a clear understanding that the responsibility for mastering the material is his or hers and not the instructor’s. In addition, the manager plays a key role in ensuring that the learning is transferred into the employee’s work environment. The manager is responsible for providing the encouragement, tools and support that will enable the employee to successfully apply the new skills and knowledge to his or her day-to-day activities.
Some people might say that the distinction between learning and training is minor, but in my mind it is quite large. It changes the entire way we approach new material. With learning, you begin at a higher motivation point, allowing the students to become active participants in the learning process as opposed to having an instructor force-feed them the material.
Now go out and make sure that your organization is focusing more on learning than training. It is an important shift in emphasis, and it is one that will better serve your organization.
You can do this!
~Sir Robert Baden-Powell
One thing that every business needs to work on is upgrading the skills of their staff. This is critical for several reasons. New technologies are constantly emerging, people are promoted or are given new responsibilities, and existing skills need to be reinforced and tweaked.
Most businesses these days talk about training, and many have entire departments dedicated to training their workers. However, I think the emphasis on training is misplaced. Rather, the focus should be on learning, and many larger companies are now changing their training departments to learning departments. While this might just seem like a subtle change in wording, I can tell you that it is much bigger.
With most training programs, the emphasis is on the trainer who disseminates information to participants. It is the trainer’s responsibility to get the material across. Training is simply an event that occurs when staff members attend a training session. Learning, on the other hand, is an internal event. It transfers the responsibility to the participant. It is now up to them to understand and master the material. Between training and learning, the focus shifts from teacher to student.
I am currently giving a seminar to a large financial institution on how to be a great manager. I have told all of the participants that I am not there to train them; but rather, that I am there to facilitate the learning process. The outcome of the seminar rests on them learning the necessary material. It is their responsibility to master the material, and not mine to train them. This is a big shift in orientation, but it is one that is vital in business.
This new philosophy requires that each participant comes into the learning environment with a clear understanding that the responsibility for mastering the material is his or hers and not the instructor’s. In addition, the manager plays a key role in ensuring that the learning is transferred into the employee’s work environment. The manager is responsible for providing the encouragement, tools and support that will enable the employee to successfully apply the new skills and knowledge to his or her day-to-day activities.
Some people might say that the distinction between learning and training is minor, but in my mind it is quite large. It changes the entire way we approach new material. With learning, you begin at a higher motivation point, allowing the students to become active participants in the learning process as opposed to having an instructor force-feed them the material.
Now go out and make sure that your organization is focusing more on learning than training. It is an important shift in emphasis, and it is one that will better serve your organization.
You can do this!
Monday, October 19, 2009
First day of work for a new employee
When we visualize something, we establish a relationship to the thing itself, not to some mere subjective representation of it inside us.
~Medard Boss
Hiring a new employee takes so much work and effort. You have to spend time recruiting and evaluating each candidate and then selecting the right applicant for the job.
It is so important to realize that when a new worker starts, their first day at work is critical. You never get a second chance to make a first impression.
So many entrepreneurs use a new employee’s first day of work to take care of all of the paperwork that is so necessary to the hiring policy. However, this is not the ideal way to start a new employee. Of course the paperwork must be done, but it is probably best to move this task to the second day of work and use the first day to generate the best initial impression that you can.
Here are some things to consider when preparing for that critical first day. Before the new employee reports for his or her first day, there are a couple of things that should be done. First, I think it is so important that the manager who will be supervising the new employee sends a nice handwritten card. Additionally, a day or two before the new employee starts, send an announcement to your entire staff via email or intranet notifying them that this individual will be joining the team. These are both great ways to make the new employee feel welcome even before they set foot on the premises.
It is so important to make a new employee’s first day of work a positive experience. One very simple thing that you can do is welcome the new employee at the door and give them a tour of the facility. Some employers actually lay out a red carpet for new employees. The point here is to ensure that each new employee feels welcome as soon as they hit the front door of your business.
I have seen so many employees arrive for their first day of work to find that they are without a permanent office or that their computers are not yet hooked up. It is vital that the work area and technology be set up and ready to go by the time the new employee starts. Some employers even prepare a gift bag containing a personalized item like a monogrammed coffee cup and some company apparel and leave it on the new employee’s desk.
An employee’s first day should also include a meeting with the CEO and top staff. At this meeting the employee should be made to feel welcome and be given a sense of the company’s purpose and mission.
Now go out and make sure that you have a plan in place to create the best possible first impression for each new employee.
You can do this!
~Medard Boss
Hiring a new employee takes so much work and effort. You have to spend time recruiting and evaluating each candidate and then selecting the right applicant for the job.
It is so important to realize that when a new worker starts, their first day at work is critical. You never get a second chance to make a first impression.
So many entrepreneurs use a new employee’s first day of work to take care of all of the paperwork that is so necessary to the hiring policy. However, this is not the ideal way to start a new employee. Of course the paperwork must be done, but it is probably best to move this task to the second day of work and use the first day to generate the best initial impression that you can.
Here are some things to consider when preparing for that critical first day. Before the new employee reports for his or her first day, there are a couple of things that should be done. First, I think it is so important that the manager who will be supervising the new employee sends a nice handwritten card. Additionally, a day or two before the new employee starts, send an announcement to your entire staff via email or intranet notifying them that this individual will be joining the team. These are both great ways to make the new employee feel welcome even before they set foot on the premises.
It is so important to make a new employee’s first day of work a positive experience. One very simple thing that you can do is welcome the new employee at the door and give them a tour of the facility. Some employers actually lay out a red carpet for new employees. The point here is to ensure that each new employee feels welcome as soon as they hit the front door of your business.
I have seen so many employees arrive for their first day of work to find that they are without a permanent office or that their computers are not yet hooked up. It is vital that the work area and technology be set up and ready to go by the time the new employee starts. Some employers even prepare a gift bag containing a personalized item like a monogrammed coffee cup and some company apparel and leave it on the new employee’s desk.
An employee’s first day should also include a meeting with the CEO and top staff. At this meeting the employee should be made to feel welcome and be given a sense of the company’s purpose and mission.
Now go out and make sure that you have a plan in place to create the best possible first impression for each new employee.
You can do this!
Tuesday, October 13, 2009
Importance of signs in your business!
A lot of people I know - it drives them crazy when they're watching, to see the people with their signs and waving, but there's something that's very inclusive about it.
~Katie Couric
When you think of advertising, you must remember that signage matters. It is part of the advertising of your business, and it makes a big difference. Signage is another arrow in your quiver that will draw customers into your business.
We were helping a fitness facility/spa increase business on its spa side. The business offered all kinds of physical fitness and beauty treatments such as facials, nails, hair and massage. More than 200 people came in each day for physical training, but the spa was barely breaking even.
Despite the fact that customers had to walk right by the spa in order to get to the fitness facility, not a single one seemed to notice. The signs for the spa services were originally hung parallel with the walkway, and we encouraged the entrepreneur to hang them perpendicular to the walkway instead. This way, potential customers would not have to turn their heads to see the offerings. Now, within a month of adjusting the signage, the spa is making a nice profit, and the owner is pleased with both the increased profits and the improved morale among spa employees.
In this case, just changing the angle of the signs should improve profits by more than $100,000 each year. Physically, this was an easy fix, but it was a difficult change to make because the owners just did not see the problem. They never looked at how the signage appeared to their customers.
An artist was lamenting to me that while his art sales were doing great, his art classes were not. His studio was located in the middle of a round-about in a major city, so there was no shortage of traffic. A tremendous number of cars passed his studio every day, but as you might have guessed, he had absolutely no signage advertising his art classes on his building. Once he put signs out, enrollment in his classes shot straight up.
Now obviously, if your business is not in a location that is visible to your customers, investing in signage makes no sense. However, if you have invested in a great location, you must take advantage of this opportunity to promote your business, subject to the legal limits of the governmental jurisdiction.
Even if you do not have a location that is conducive to outside advertising, signage must be used on the inside to effectively promote your products or services. Just having product on display is not good enough. You need signs to explain in greater detail what the products do or where they are located.
Signage is one of the cheapest forms of advertising, yet it is one of the most effective. The best way to test the effectiveness of your signage is to ask people – not friends or relatives – for feedback on what they think in terms of your signage. Just listen to what they say. Their comments can be so valuable.
Now go out and ensure that you have the best signage that you can both inside and outside your business.
You can do this.
~Katie Couric
When you think of advertising, you must remember that signage matters. It is part of the advertising of your business, and it makes a big difference. Signage is another arrow in your quiver that will draw customers into your business.
We were helping a fitness facility/spa increase business on its spa side. The business offered all kinds of physical fitness and beauty treatments such as facials, nails, hair and massage. More than 200 people came in each day for physical training, but the spa was barely breaking even.
Despite the fact that customers had to walk right by the spa in order to get to the fitness facility, not a single one seemed to notice. The signs for the spa services were originally hung parallel with the walkway, and we encouraged the entrepreneur to hang them perpendicular to the walkway instead. This way, potential customers would not have to turn their heads to see the offerings. Now, within a month of adjusting the signage, the spa is making a nice profit, and the owner is pleased with both the increased profits and the improved morale among spa employees.
In this case, just changing the angle of the signs should improve profits by more than $100,000 each year. Physically, this was an easy fix, but it was a difficult change to make because the owners just did not see the problem. They never looked at how the signage appeared to their customers.
An artist was lamenting to me that while his art sales were doing great, his art classes were not. His studio was located in the middle of a round-about in a major city, so there was no shortage of traffic. A tremendous number of cars passed his studio every day, but as you might have guessed, he had absolutely no signage advertising his art classes on his building. Once he put signs out, enrollment in his classes shot straight up.
Now obviously, if your business is not in a location that is visible to your customers, investing in signage makes no sense. However, if you have invested in a great location, you must take advantage of this opportunity to promote your business, subject to the legal limits of the governmental jurisdiction.
Even if you do not have a location that is conducive to outside advertising, signage must be used on the inside to effectively promote your products or services. Just having product on display is not good enough. You need signs to explain in greater detail what the products do or where they are located.
Signage is one of the cheapest forms of advertising, yet it is one of the most effective. The best way to test the effectiveness of your signage is to ask people – not friends or relatives – for feedback on what they think in terms of your signage. Just listen to what they say. Their comments can be so valuable.
Now go out and ensure that you have the best signage that you can both inside and outside your business.
You can do this.
Monday, October 5, 2009
Backups
A business without adequate backups is like the Titanic and its inadequate life rafts happily cruising towards a sad fate.
~T.E Ronneberg
Technology can be so great, and I really do love my tech toys. However, without the proper backup measures, they quickly turn from friend to foe.
I have a new phone, which I love except for last week. I decided (with some help from a computer salesman) that I needed to install new software on my phone that would enable me to wirelessly synchronize the phone with my computers (a Mac and a PC). I thought this was a great idea to ensure that none of my data gets lost before I return to my office.
Last week, while on a trip to South Florida, I installed this new software only to have all of my data (contacts and calendars) disappear into the clouds. This was not good, especially since I was in South Florida doing work. Without the data from my phone, I had no idea where or when my appointments were.
After many calls to the software company and one very strong chastisement from them to me for not having a backup with me (my computer, of course, was back in Tallahassee), there was not really much they could do.
I was able to limp through the week in Fort Lauderdale using only a few four letter words to vent my total frustration. I was, however, petrified to go back to Tallahassee and try to resync my phone for fear that the data in my office might disappear as well.
Before trying to resynchronize my files, I made two CDs with the data in case I lost it again. This time, the backup and data recovery worked out okay, but the whole ordeal made me realize just how important backing up your data is, particularly for business owners.
Whether due to circumstances that are not your fault or cases like mine (I think that I messed up the installation of the software), you will eventually need your backup disc. Even if you do everything right.
It is critical that you back up your files daily and store your data off premises. If you live in Miami, keeping a backup in Fort Lauderdale is not going to do it as a large hurricane in Miami is going to affect Fort Lauderdale as well. There are many companies out there that offer services to electronically back up your data every day, and they are typically located a long distance away.
Not only must you make backups, but you should also know how to restore your system from these backups. I was helping a business, and I was concerned about their backup procedure. I asked the owner to restore the data from the backup to the primary computer system. He was hesitant to do so as he had never done it before, so I got him to make another backup, just in case. He then tried to restore the data from the first backup, and he had a number of problems.
When we got through this ordeal, he thanked me as he would never have tried to restore the data if I had not made him. Now he feels so much more empowered as he not only backs everything up, but he also knows how to restore it.
Like most things, it is frequently useful to get professional help in setting up your backup scenarios and recovery testing. This is money well spent.
Now go out and make sure that you back up your files daily and store your data a safe distance from your office. Additionally, be certain that you can easily restore your system from your backup data.
You can do this.
~T.E Ronneberg
Technology can be so great, and I really do love my tech toys. However, without the proper backup measures, they quickly turn from friend to foe.
I have a new phone, which I love except for last week. I decided (with some help from a computer salesman) that I needed to install new software on my phone that would enable me to wirelessly synchronize the phone with my computers (a Mac and a PC). I thought this was a great idea to ensure that none of my data gets lost before I return to my office.
Last week, while on a trip to South Florida, I installed this new software only to have all of my data (contacts and calendars) disappear into the clouds. This was not good, especially since I was in South Florida doing work. Without the data from my phone, I had no idea where or when my appointments were.
After many calls to the software company and one very strong chastisement from them to me for not having a backup with me (my computer, of course, was back in Tallahassee), there was not really much they could do.
I was able to limp through the week in Fort Lauderdale using only a few four letter words to vent my total frustration. I was, however, petrified to go back to Tallahassee and try to resync my phone for fear that the data in my office might disappear as well.
Before trying to resynchronize my files, I made two CDs with the data in case I lost it again. This time, the backup and data recovery worked out okay, but the whole ordeal made me realize just how important backing up your data is, particularly for business owners.
Whether due to circumstances that are not your fault or cases like mine (I think that I messed up the installation of the software), you will eventually need your backup disc. Even if you do everything right.
It is critical that you back up your files daily and store your data off premises. If you live in Miami, keeping a backup in Fort Lauderdale is not going to do it as a large hurricane in Miami is going to affect Fort Lauderdale as well. There are many companies out there that offer services to electronically back up your data every day, and they are typically located a long distance away.
Not only must you make backups, but you should also know how to restore your system from these backups. I was helping a business, and I was concerned about their backup procedure. I asked the owner to restore the data from the backup to the primary computer system. He was hesitant to do so as he had never done it before, so I got him to make another backup, just in case. He then tried to restore the data from the first backup, and he had a number of problems.
When we got through this ordeal, he thanked me as he would never have tried to restore the data if I had not made him. Now he feels so much more empowered as he not only backs everything up, but he also knows how to restore it.
Like most things, it is frequently useful to get professional help in setting up your backup scenarios and recovery testing. This is money well spent.
Now go out and make sure that you back up your files daily and store your data a safe distance from your office. Additionally, be certain that you can easily restore your system from your backup data.
You can do this.
Monday, September 28, 2009
Making your business theft-resistant
Each time you are honest and conduct yourself with honesty, a success force will drive you toward greater success. Each time you lie, even with a little white lie, there are strong forces pushing you toward failure.
~Joseph Sugarman
In this very slow economy, employee and customer theft is a growing problem. The more your employees and customers are financially squeezed, the greater the probability of theft of funds or assets.
The U.S. Chamber of Commerce estimates that employee theft accounts for somewhere between 20 and 40 billion dollars in business losses. The Chamber also reports that an employee is 15 times more likely to steal than a customer or non-employee, and 75 percent of all employee crime goes unnoticed. In addition, less than 10 percent of the employee base is responsible for over 95 percent of theft. Bottom line, theft represents a significant cost to most firms, but it is one that can be reduced.
The best thing you can do to prevent theft is to make your business theft-resistant. In other words, do everything you can to deter theft rather than dealing with it once it has occurred. Like most things, making your business theft-resistant requires a plan and some research into where your vulnerable points are. However, there are many common areas that most businesses share to work on to make your business as theft-resistant as possible.
One of the best means of theft prevention is installing surveillance cameras anywhere financial transactions take place. Some entrepreneurs are hesitant to take these measures out of concern that employee morale will decline as they no longer feel trusted. While this does frequently happen, it can be easily avoided by telling staff ahead of time what you will be doing and why. Most people seem to understand the importance of a deterrent.
Good background checks and pre-employment screenings are critical when theft-proofing your business. Start with honest employees and combine that element with anti-theft measures. Together, these are the keys to reducing theft.
Frequently, businesses hire applicants that have a blemish on their record (e.g. felony conviction) to give them a second chance. This is a disaster waiting to happen considering that these past issues are just the ones for which the applicant got caught.
Another practice that is so important to preventing theft is ensuring that each employee takes some time off every year. Frequently, employees are able to cover up theft by routinely altering the books. Taking time off would mean getting caught if they tried to do this.
Materials and fuel are vital areas to watch when making your business theft-resistant. Controlling access to both your fuel and credit cards is so important, and staff should be made aware of the fact that you are monitoring these.
Taking inventory on a regular basis (more than once a year) is a great way to prevent theft. I have personally seen so many cases where theft of materials by staff members could have been easily avoided had a simple monitoring system been in place.
Finally, whenever cash is involved, it is always good to have a system of checks and balances. For example, at the end of the day, cash is counted and signed off on by two staff members.
Now go out and develop a plan to make your business as theft-resistant as possible and then implement this plan.
You can do this.
~Joseph Sugarman
In this very slow economy, employee and customer theft is a growing problem. The more your employees and customers are financially squeezed, the greater the probability of theft of funds or assets.
The U.S. Chamber of Commerce estimates that employee theft accounts for somewhere between 20 and 40 billion dollars in business losses. The Chamber also reports that an employee is 15 times more likely to steal than a customer or non-employee, and 75 percent of all employee crime goes unnoticed. In addition, less than 10 percent of the employee base is responsible for over 95 percent of theft. Bottom line, theft represents a significant cost to most firms, but it is one that can be reduced.
The best thing you can do to prevent theft is to make your business theft-resistant. In other words, do everything you can to deter theft rather than dealing with it once it has occurred. Like most things, making your business theft-resistant requires a plan and some research into where your vulnerable points are. However, there are many common areas that most businesses share to work on to make your business as theft-resistant as possible.
One of the best means of theft prevention is installing surveillance cameras anywhere financial transactions take place. Some entrepreneurs are hesitant to take these measures out of concern that employee morale will decline as they no longer feel trusted. While this does frequently happen, it can be easily avoided by telling staff ahead of time what you will be doing and why. Most people seem to understand the importance of a deterrent.
Good background checks and pre-employment screenings are critical when theft-proofing your business. Start with honest employees and combine that element with anti-theft measures. Together, these are the keys to reducing theft.
Frequently, businesses hire applicants that have a blemish on their record (e.g. felony conviction) to give them a second chance. This is a disaster waiting to happen considering that these past issues are just the ones for which the applicant got caught.
Another practice that is so important to preventing theft is ensuring that each employee takes some time off every year. Frequently, employees are able to cover up theft by routinely altering the books. Taking time off would mean getting caught if they tried to do this.
Materials and fuel are vital areas to watch when making your business theft-resistant. Controlling access to both your fuel and credit cards is so important, and staff should be made aware of the fact that you are monitoring these.
Taking inventory on a regular basis (more than once a year) is a great way to prevent theft. I have personally seen so many cases where theft of materials by staff members could have been easily avoided had a simple monitoring system been in place.
Finally, whenever cash is involved, it is always good to have a system of checks and balances. For example, at the end of the day, cash is counted and signed off on by two staff members.
Now go out and develop a plan to make your business as theft-resistant as possible and then implement this plan.
You can do this.
Monday, September 21, 2009
Focusing on Accounts Receivable
Managing your accounts receivable is so critical in today’s economic environment. So many entrepreneurs are having problems with cash flows, that paying late just seems to be becoming more and more pervasive. While you can be empathetic with your customers’ issues, you must insure financial viability of your company. Managing your accounts receivable and being proactive in their collection is the way to insure that you have enough cash to meet your obligations.
In order to measure collections of accounts receivable, there are two standard measures. The first is an “aging schedule” which just lists the amount that is owed within certain time periods. This might say that $100,000 of receivables are less than 30 days old and $200,000 are 30 to 60 days old and $100,000 is over 60 days. With this aging schedule you can see over time how effective your collection effort is.
Another benchmark for measuring collections of accounts receivable is the ratio called, average collection period. This ratio just specifies the number of days of credit sales tied up in accounts receivable. The formula is just accounts receivable divided by credit sales per day. If I have terms of net 30 days and my average collection period is at 45 days then it says that I am not doing an effective collection effort.
Some of the things that you can do to improve collections is to make sure that someone is in charge of this activity. Like most things, if no one is in charge, it tends to slip between the cracks. Additionally, you need to make this a top priority of yours and remind staff how important this is to the business.
Now making collections calls and asking for money is no fun and many folks do not like to do this. However, this must be done and you doing some of these calls sets the right tone for your business.Some firms have moved successfully to the policy that the bill is due upon receipt rather than having terms like net 30 days. This due on receipt really does speed the cash coming in.
Another thing that you need to consider is credit terms to encourage customers to pay early. For example you can offer terms of 1/10 net 30 which means if you pay with 10 days, you can take 1% off the bill but the full amount is due by day 30.
Charging a fee of 1.5% for late payment is another thing that you can do to speed up collections. However, if someone does not have the money to pay, this seems not to have a great impact.
Finally, you need to have a collections policy in place. It should specify what will happen as the lateness of the bill increases. For example a collection policy might state: a. if a bill is 15 days past due then a duplicate invoice with a nice note saying the invoice might have gotten lost. b. if a bill is 30 days past due, then a call is made checking on the status of payment and finally, c. a demand letter goes out and says if payment is not made, the bill will be turned over to a collection attorney and no further goods or services will be provided to the customer.
You can do this!
In order to measure collections of accounts receivable, there are two standard measures. The first is an “aging schedule” which just lists the amount that is owed within certain time periods. This might say that $100,000 of receivables are less than 30 days old and $200,000 are 30 to 60 days old and $100,000 is over 60 days. With this aging schedule you can see over time how effective your collection effort is.
Another benchmark for measuring collections of accounts receivable is the ratio called, average collection period. This ratio just specifies the number of days of credit sales tied up in accounts receivable. The formula is just accounts receivable divided by credit sales per day. If I have terms of net 30 days and my average collection period is at 45 days then it says that I am not doing an effective collection effort.
Some of the things that you can do to improve collections is to make sure that someone is in charge of this activity. Like most things, if no one is in charge, it tends to slip between the cracks. Additionally, you need to make this a top priority of yours and remind staff how important this is to the business.
Now making collections calls and asking for money is no fun and many folks do not like to do this. However, this must be done and you doing some of these calls sets the right tone for your business.Some firms have moved successfully to the policy that the bill is due upon receipt rather than having terms like net 30 days. This due on receipt really does speed the cash coming in.
Another thing that you need to consider is credit terms to encourage customers to pay early. For example you can offer terms of 1/10 net 30 which means if you pay with 10 days, you can take 1% off the bill but the full amount is due by day 30.
Charging a fee of 1.5% for late payment is another thing that you can do to speed up collections. However, if someone does not have the money to pay, this seems not to have a great impact.
Finally, you need to have a collections policy in place. It should specify what will happen as the lateness of the bill increases. For example a collection policy might state: a. if a bill is 15 days past due then a duplicate invoice with a nice note saying the invoice might have gotten lost. b. if a bill is 30 days past due, then a call is made checking on the status of payment and finally, c. a demand letter goes out and says if payment is not made, the bill will be turned over to a collection attorney and no further goods or services will be provided to the customer.
You can do this!
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