Many SMEs struggle with cash inflow because their provision for bad debts is on an increase.
Bad debts are debts that cannot be recovered again within a period of time and it is almost inevitable for companies to recover all debts, most especially at this period of economic downstream.
Bad debts cause a deficit to business owners and company’s need funds to operate their working capital. Many SMEs source for the loan to meet up with their daily operation. One of the funniest things is that customers who owe still comes around asking for credit sales. This goes on and on till you find yourself in a mess.
As a start-up or an entrepreneur struggling with debtors in your business and likewise, you find it very difficult to chase your customers away because they are the consumer of your products. Here are the five steps you could take to recycle your customers in order to save your business from bad debts.
Know the Livelihood of your Customers
Your customers are the backbone of your business, without them, there is absolutely nothing to produce nor services to render. It’s fine when you have the knowledge of your customer’s status in society. This has nothing to do with whether they are rich or poor, hence, you start dealing with them differently. Of course, no! Don’t be surprised that even a low-class customer can connect you to a high-class customer.
What we are saying, in essence, is that you should know what most of your customers do for a living. This will make you understand your customer’s purchasing power and the minimum or maximum amount of credit sales you can offer to such customers.
Offer Subsistence Value to your Customers
Your customers, your pride. When your customers are doing well in their careers or businesses, it will reflect in their purchasing power and equally take a turn on your own sales. If otherwise, then your sales may witness an epileptic demand for your product or services. Even, when such customers going through tough and rough life demands for your product, it will be mostly on credit.
What do you do? Offer valuable advice to your customers through your HR team. Place them on a session with your HR team for free on what they are currently going through. This will rekindle your loyalty to them.
Be careful though, you don’t want to introduce your client to a person or a business that will fail. Don’t get yourself into that mess, just give them your advice via your words and make them understand it’s just an expert idea from what you think can help them.
Don’t mix Business with Pleasure
As an entrepreneur, your customers can come from different spheres of life, whether family, friends, or strangers. Don’t ever mix business with pleasure. And I repeat don’t ever!
It’s better not to start what you can’t finish, then to start it and later want to stop it. This will cause a lot of harm to your business. No matter how desperate you are to increase the number of the customers you have or how close your customers are to you, hence, the value they offer, don’t accommodate credit sales without proper term of payment or an agreement in the paper.
Learn to understand that your business is an entity that is different from its owner. Make sure to deal with everyone in a witty manner.
We have some customers that have become so closely related to the extent that they have an impact on the number of clients you have. Know how to appropriately subsidize their purchase through discounting.
Be Transparent in your Communication
In your business, your debtors do not know what you are going through in terms of servicing your debts and covering up for what they haven’t paid for. You need to communicate your credit policy plan (CPP) with your customers. Even if it will take a promissory note to show commitment before offering sales. Negotiate the terms of payment with your customers, set a monthly or weekly reminder for your customers through different means. Let them know it’s your company policy and it’s an automated procedure.
Debt-to-Equity Ratio
Based on the amount of profit your business is generating, you need to apply a debt-to-equity ratio in order to measure the total amount of debt in relation to your sales return. You should know how to employ a pause mechanism in credit sales whenever the amount of debt incurred is increasing per the revenue you are generating.
In conclusion, your business is an entity on its own that can be sued and that can sue. Your business has suffered in the hands of unyielding customers enough. Don’t chase them away, try the aforementioned steps, and recycle your customers. Learn about debt management as well.