Unless you operate on a cash basis, a common problem is getting paid within a reasonable time. Many reports by credit organizations confirm not only that the problem is widespread, but it seems to get worse every year and bad debts are the number one reason businesses fail!
While many small business owners gauge their success based on sales, after all “Nothing succeeds without sales” as the adage goes, any shrewd operator knows reducing costs can be far more profitable than increasing sales. For example, if the company sells a product with a 20% profit margin after all costs-product cost, salaries, overhead, etc.-$1,000 in sales (minus $800 in costs) produces a $200 profit. A 10% increase in sales increases profit by $20. But a 10% reduction in costs saves $80, which is four times as much. Thus, a reduction in costs of only 2.5% will produce as much profit as a 10% increase in sales.
The moral of the story is you need to manage the expense side of the equation and nothing is more critical than that of managing your bad debt expense.
Janet Attard, in her article “10 Steps To Getting Paid on Time” provides practical insights on how to do just that. See the hyperlink below for her article.
http://www.openforum.com/articles/10-steps-to-getting-paid-on-time
