I’ve worked with startups for several years. I’ve had a lot of experience with both the giving and receiving end of collections efforts. In my role as CFO, I’ve seen what brings in our receivables most effectively and what tactics best encourage us to prioritize vendors when cash is tight.
Collecting bills is a balancing act. You must keep cash flowing to pay your own bills, but helping customers through difficult times can build loyalty. It’s important to have an effective strategy for finding the right balance.
An important part of the strategy is defining who contacts customers whose bills are overdue. A common debate is whether sales or accounting should take this role.
Before I share my preference, here are some of the arguments for either side:
Reasons for accounting to handle collections:
1. Sales should focus their time and attention on selling and not administrative tasks.
2. Hounding customers for payment might hurt the customer relationship.
Reasons for sales to handle collections:
1. Sales can use their relationship to encourage payment. Faceless accounting people are easy to ignore.
2. Knowing the customers' account status and payment habits helps sales understand the customer better.
3. Sales will be more motivated to sell to credit-worthy customers if they know they also have to collect.
You can probably guess my preference from the length of my arguments. In businesses that have sales reps with direct customer relationships, I strongly prefer that the sales reps make the collections calls.
This preference comes mainly from my experience from the customer side. As I wrote about in a previous post, the startups I work with sometimes don't have enough cash to go around.
Prioritizing precious cash is difficult when I desperately want to pay everyone on time. Often my decisions about who to pay and when are based on relationships. It's easy to ignore an email or voicemail from an accounts receivable person I don't know. It's difficult to ignore a sales rep whose relationship and service I value.
Yes, there is a risk that pushing customers for payment will damage the relationship. But customers understand they need to pay their bills on time. If they're offended when asked nicely to pay, they aren't the kind of customer you want anyway.
Yes, collections takes time that a salesperson could be using to generate more sales. But they should be in regular contact and familiar with the customer anyway. Mentioning a late bill shouldn't take much extra time.
Here are some tips for salespeople who want to collect effectively:
1. Set expectations from the beginning. When onboarding a new customer, make it clear that you expect them to pay their bills on time or they will hear from you.
2. Follow up promptly. After telling them they will hear from you if they get behind, follow through. The contact doesn't have to be threatening. The day after a bill is due, give them a friendly reminder. Sometimes late payments are simply the result of a misplaced invoice.
3. Be patient and understanding. For honest business people, not being able to pay the bills is stressful. You can make it clear you expect to get paid while empathizing with their situation. Helping a good customer through difficult times goes a long way toward build lasting loyalty.
4. Blame accounting! And it will be the truth. Accounting and management set the collections policies, and as a salesperson you are just doing your job.
I encourage you to at least consider giving sales the responsibility for collections. Let the salespeople leverage their relationships to keep the cash flowing.
Question: In your business does sales or accounting handle collections, and why?