Business School – Stop Chasing Invoices: Build a Collections System

Business School Track: Week 2 - Managing Cash Collections. 

Last week we made the case for creating an honest price structure. This week we look at how to collect it. 

An invoice that sits for 60 days is not a sale. It is a loan to your customers business that you did not agree to make, at a rate you did not set, to a customer who still wants the next load of product.

Many African businesses treat collections as a personality problem. Someone must be tougher. Someone must phone again. That is how you burn the one person willing to have the awkward conversation, and how the same five accounts stay on the book for months. 

Effective collections is a system: terms before the load leaves, a follow-up that runs without mood, and a stop-supply rule that does not need a meeting.

Delay eats the price you set last week that was intended to make your business profit. On  a product sale, 45 days payment already adds additional unplanned cost to a unit. Stretch it to 75 and you have given the customer extra margin in their business without a discount conversation.

A worked example: CleanLine tightens the book

Our fictitious entity CleanLine is cited again — the same composite packer from Week 1. After the pricing audit they kept the 5-litre drum and killed the 1-litre bottle that lost R3 a unit. The sales book still looked respectable. The bank account did not.

At the start of the month they had R186,000 sitting in debtors. Average days to pay: 48. One regional chain, the account everyone is afraid to lose, made up 34% of that book and was paying on 67 days. The workshops that reordered every fortnight were carrying the chain.

They did three things in one week. New accounts paid 50% before the first load. Existing accounts got a written floor: 30 days, stop-supply at day 37. Follow-ups ran on a WhatsApp sequence, not on whoever felt brave that morning. Month one, invoiced sales dropped 8%. The chain threatened to review the relationship. CleanLine loaded them once more against a part-payment, then stopped. By week six, debtor days were 31 and cash in the current account was up R61,000. The chain returned on 30 days plus a deposit on the first load of each month. Revenue took six weeks to recover. The concentrate supplier got paid without raiding the drum that still worked.

Three Collections Realities this Market will not Negotiate Away

1. Pay-when-we-get-paid is their problem until you make it yours

Large customers run their own cash cycles to benefit their business. Mines, retailers, municipalities and main contractors will tell you they pay suppliers when they are paid. If you accept that as your terms, you have agreed to fund their working capital. 

A small startup 10-person firm cannot be the bank for a 400-person, multi-location customer. 

Put the terms on the quote, the invoice and the load sheet. If they need 60 days, the Week 1 price has to move, or the volume has to shrink. What your business cannot afford to do is to  absorb a 60-day payment cycle at a 30-day price bracket.

2. WhatsApp is the book, so write the book

The cash chase happens in the same chat as the order. Treat that WhatsApp chat as a record. One thread per account. Send a PDF Invoice the day the load leaves. Follow-up on a dated calendar with reminders, and not only when you remember.

3. Legal letters are late

A letter of demand is not a collections system. By the time you pay an attorney, the contribution benefit on that invoice is often gone and the relationship has gone with it. Use the attorney only when the account is already dead and the amount is large enough to justify the fee. What keeps you alive is deposits, a stop-supply policy, and a cadence the customer learns to expect and respect. Remember if your price and product was right to start with there is not further need for further benefit to the client that kills your cash-flow.

The Cash-flow Rules: deposit, terms, stop-supply, walk away

Write these on one page and add them to your quote template. If they only live in your head, they will fold the first time a familiar voice asks for a new product load.

- Deposits. 

• New accounts: ask for 50% before the first three loads. 
• Services and jobs with materials: 50% to start, balance on delivery or against a milestone you can photograph. 
• Cash on delivery under a threshold that you can specify 
  

- Terms. Consider implementing no new client gets 30 days on the first invoice. Terms are then earned: three invoices paid on time, then 30 days. Not 30 days because the buyer used the word account. In tight payment markets these are solid practices.

- Stop-supply. No load-out if any invoice is older than given terms plus seven days. The warehouse does not need a speech. They need a flag on the order. If you override it, write why, and write when the override ends.

- Walk away. If one client is more than a quarter of debtors and is consistently past terms, it is not a customer. It is a concentration problem wearing a purchase-order number. Give them one chance to come onto term agreement. If they do not, stop loading. 

Our week 8 goes deeper on client concentration. This week, protect your cashflow.

Five Proactive Steps you can run this week:

1. Age the book in three buckets

Open last month’s invoices. Current. 1–30 days past terms. 31 days and over. Write the value in each bucket and the name at the top of the last one. If you cannot do this in 20 minutes, the book is not a book. It is a pile of PDFs.

2. Put terms on the next quote, not in a policy document nobody reads

Add one line: 50% payment required before next load / delivery, balance due in 30 days, or stop-supply after day 37. Repeat it on the invoice. Repeat it on the delivery note. The customer who refuses the line was never going to pay on time.

3. Run the 7 / 14 / 30 sequence without rewriting it each time

Copy the messages below. Change the numbers. Send them from the same number, same thread, same time of day. Courtesy first. Facts second. Consequence third. No insults. No essays.

4. Give stop-supply to the person who releases the load

If only the founder can say no, no will arrive after the bakkie has left. The warehouse, the dispatcher or the person who prints the delivery note gets the flag. Founder override is allowed. Silence is not

5. Pick the account you will stop this month if nothing moves

One name. One balance. One date. Tell them the date in writing. If the money arrives, reset terms. If it does not, stop. Do not add a second name until the first decision is done.

The 7 / 14 / 30 day Follow-up

Send communication regarding payment from the invoice thread. Attach the PDF every time. Use the customer’s name. Keep it short enough to read at a robot.

Day 0, load leaves: Dear (Customer Name) — load is out. Invoice 1042 for 16,500 attached. Terms 30 days, due 29 Oct. Please confirm received.

Day 7: Dear (Customer Name) — checking invoice 1042 is with accounts. Still due 29 Oct. - Flag anything that does not match the delivery note.

Day 14: Dear (Customer Name) — invoice 1042, 16,500, due 29 Oct. Need a payment date this week so we can plan the next load / delivery / job.

Due date: Dear (Customer Name) — invoice 1042 is due today. Please send proof of payment. - Next load waits on a clear account.

Day 37, stop-supply: Dear (Customer Name) — invoice 1042 is 7 days past terms. We cannot load until it is settled. Please send the POP and we will book you in.

If they reply with “we will pay when our customer pays,” you answer once: “Understood. Our terms stay 30 days. We will load again when 1042 is settled.” Then stop arguing. The system is the argument.

What to Measure next month

- Debtor days on the book, same method every Friday.

- Share of debtors sitting past terms. Target: falling, not explained.

- Cash collected this week against invoices issued last month. If that ratio does not move, the sequence is not running.

A single October target worth using: debtor days under 35, and no account past terms still receiving loads.

The mistake that Looks like progress

Loading the slow payer “one more time” because month-end needs the invoice. You have just made the book look healthier and the bank account worse. The same mistake wears other clothes: offering a discount for a promise instead of a proof of payment; letting a familiar first name skip the sequence; writing a long voice note instead of the day-37 line.

If You Only do one Thing

Today make a list of every invoice past regular payment terms. Circle the largest balance. Send the message that matches the day it is on — 14, due date, or 37 — and tell the person who releases loads that this account is flagged. Do not draft a new policy. Run the sequence on this page.

Next Tuesday: We cover the people who will sell and collect that price. A collections system that still needs the founder on every sales chat is not a system yet.

Read with this Business Lesson: Week 1 - If You Cannot Price It, You Do Not Have a Business

Next Week (week3): Your First 10 Hires