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STAYING ALIVE IN BUSINESS MEANS ELIMINATING MISTAKES

Kim Radok18 February 2022

The one truth we do know about the business world once COVID becomes endemic and we have to live with it, is that all our business communities will be smaller. Irrespective of whether your business operates locally or globally, you are going to have to contend with a smaller range of stakeholders. Yes, there will be businesses which will still be able to find new customers, however, even then, the numbers available will be less than prior to COVID.

As result, with a smaller number of potential customers, the one thing your business does not want to do, is to give your customer an excuse to slow pay you or go to a competitor. The mistakes by your business when selling to and invoicing your customers will be one of the causes of why customers slow pay or leave you for a competitor.

The mistakes in question which motivate your customers to take the above actions include:

  1. a lack of an authorised purchase number or other valid authorising details;
  2. goods or services invoiced but never supplied;
  3. as a result of large numbers of valid and invalid credit claims;
  4. incorrect pricing;
  5. return of incorrect or damaged stock supplied;
  6. incomplete services;
  7. invoices made out to wrong parties or sent to wrong address, etc.

It cannot be stressed enough, mistakes which cause credit claims, reinvoicing because of sending invoices incorrectly, will increase unnecessary expenses, with a negative impact on sales and profits. In a world where there will be fewer potential customers, many of which will also be asking for lower prices, the last thing you need is to waste time and resources fixing mistakes.

A focus is therefore required to deal with all identified mistakes quickly, plus investigate the causes of these claims in order to stop these claims occurring time and time again. Perhaps it is also timely to clarify again what we mean by processing a mistake.

The first part of processing mistakes is to investigate the mistake, and secondly, to reissue or cancel an invoice. Let us assume, at the very least the cost of processing an invoice due to a mistake is $10.00. As for all expenses, this is a cost that needs to be paid for.

Following are two examples of how much of your future sales is required to replace the unnecessary cost of processing even the simplest of mistakes can be:

  1. if your gross profit on sales is 10%, then you will need $100.00 of future sales to replace the cost of dealing with the mistake, or for another example
  2. if your gross profit on sale is 20%, then you need $50.00 of future sales to replace the lost cost of dealing with the mistake, and so on.

There will of course be additional and even more expense costs in fixing mistakes than the $10.00 shown above, which will impact negatively on the viability of the business. These costs which cannot always be calculated in dollar terms will include:

  1. the potential loss of the customer;
  2. similar mistakes and resultant costs occurring in other customer accounts; and as is also recognised
  3. the often hidden costs which are exposed when calculating the net profit, because as we all known, many additional costs will accrue between the gross and net profit figures.

In the future smaller business community where every profitable sale and customer will be precious, avoidable mistakes will be very damaging. Therefore, it is just common sense to deal with mistakes properly and efficiently, in addition to finding and eliminating the causes of any mistakes which occur repeatedly.

Want to know more, contact Kim at kim@creditmatters.com.au, or 61 3 9886 6707 Mobile 0411 649 261, or have a look at what we offer via our website at www.creditmatters.com.au

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