January 18, 2011

Profit Point #3 - Stop extending excessive credit.

Your great clients don’t need it, while your not so great clients will readily take advantage of the credit, often leading to slow payment or no payment.

Remember for every dollar of accounts receivable written off, it takes three dollars of additional revenue to recoup your loss.

Instead of offering all of your clients credit, use scheduled payments for larger jobs (i.e. 30% each for three payments with the 10% final payment upon delivery of the financial statements) and offer budget payment plans to clients ("as a benefit to our clients we are now offering a budget payment plan").

Start the payments in the off season and offer a discount for participation (3%-5%). Of course these plans have to have the covenant that the budget plan is based upon the prior year’s fees and additional work required will be billed separately.

These steps will speed up cash flow and result in lower capital requirements for your partners while at the same time improving profitability.
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