The ideas in this post come from a recent conversation with Pia Thompson. Pia is an attorney with Gould & Ratner in Chicago, specializing in helping corporate clients with complex commercial litigation matters. But beyond litigation, Pia works proactively with her clients to head off problems before they happen. One of her areas of expertise is revenue management.
The good news is that as the economy continues to gather steam, more and more businesses do indeed have revenue to manage. But the bad news is that many business leaders have failed to put in place best practices that can protect their revenue stream. Good revenue management practices become increasingly important once revenue is over $5M. And they are especially critical when a business is reliant on one or two large clients. Here are some key suggestions:
- Establish a revenue management program that alerts you before a collection problem gets out of hand.
Do you have guidelines and processes that alert you as soon as an account becomes significantly delinquent? Or will you become aware of a problem only after it is out of control? Put a system into place before a problem occurs.
- Establish a protocol for managing collection problems with delinquent clients.
When a client fails to pay on time, business leaders often respond by tightening the collection terms. For example, they may demand payment on a tighter deadline than before. But Pia points out that such a change can actually jeopardize your ability to collect. It is important to know and weigh your options before tightening credit terms. If that troubled client files for bankruptcy protection, you have a stronger case in the bankruptcy proceedings if you have maintained the same collection policies.
- Seek financing for your business when times are good.
Right now, lenders are falling all over each other to lend to companies with a good cash position. Business leaders from those companies are in a position to negotiate very good terms. Many business leaders make the mistake of failing to seek credit until their company needs it. By then, the terms will be much less favorable, if you can get financing at all.
These are wise suggestions for revenue management. They also illustrate a broader leadership principle – anticipate problems, weigh risks, and proactively establish mechanisms to respond before the problems arise. As the fear and caution of the last few years gives way to new energy and optimism, it is important that business leaders remain prudent.