Do you use a "Promise to Pay Checklist" in your business?
Practically every business has experience with customers that promise to pay and don't.
In today's uncertain business climate, following up on customer payments is more important than ever. We are already seeing many firms holding onto their cash in anticipation of our economic recovery taking longer than anticipated. Unfortunately, your business needs cash flow to survive as well.
It isn't surprising if you have had experiences with customers who break their promise to pay. According to the Accenture Broken Promises survey, a high proportion of Americans (40%) say the companies with which they do business made a promise to them in the past year and failed to keep it. More importantly, more than one-half (62%) of customers report that companies have broken multiple promises, and believe they are often unaware that this is happening.
To help your staff effectively negotiate with your clients, we have developed a "Promise to Pay Checklist" (PTP checklist) that can be implemented quickly and provides your company with a better degree of certainty that you will receive payment as promised.
Here Are Our Top 7 Tips for Converting Promises Into Cash
- Get an exact amount of the remittance.
- Obtain a specific date the funds will be received at your office.
- Ask the source of the funds.
- Ask yourself – considering the source of the funds, is it likely that the promise will be kept on the day promised? E.g.: Promise of $10,000 tomorrow/funds coming from cashing in RRSP but hasn't called broker yet. Shareholder injecting cash into the business – Waiting on government-guaranteed loan - etc.
- Mortgage can take up to a month to settle depending on numerous factors.
- Bank financing – ask for a copy of the Term Sheet. If they can't produce a Term Sheet, then there is no bank financing. The customer is stalling for time.
- Investor putting in money – get name and contact details to confirm funding.
- Selling equipment – get details of the sale. E.g., Ritchie Bros auction, Get VIN's, or serial numbers.
5. If PTP is significant, but the date is more than one week away, get an immediate holding payment to get customer back under their credit limit.
6. Confirm precisely how funds will be remitted. EFT, wire, cheque, and then set a diary date to check on the payment.
7. Recap the PTP with your customer to confirm all the details, giving them a chance to correct you, if necessary. Once both parties agree on the terms of the promise of payment, send an email to confirm the details of your conversation and place a copy of the email in your client's profile so you can refer to it later.
Promise to Pay Checklist Conclusion
Along with this Promise to Pay Checklist, use your common sense to check the validity of your customer's situation. If your firm can afford to extend longer terms to clients who are impacted by market forces outside their control, that's great. If the market situation doesn't bode well for your client's long-term viability, then it makes sense to act now to reduce your risk. Make the calls, follow the Promise to Pay Checklist and get the promise of payment, but be realistic. If the promise of payment is broken, take immediate action to manage your risk.