Where is the Money?

There are few things more destructive to your business than having an ineffective system for collecting accounts receivable. Your cash will dry up. Your collection activities will take up too much of your valuable time. A few recalcitrant debtors will impact the relationship you have with all of your customers.  

Many of my clients have learned the hard way that it’s important to have a process in place to manage your receivables and bring cash into your company’s coffers. Below are the components of an efficient process. 

Stop being a banker 

A client of mine, a long-time friend and an attorney, once told me that he doesn’t believe in accounts receivable at all. “I am not a banker,” he said “My clients buy blocks of time up front.” Your very first step is to consider rejecting receivables altogether, if possible. If your company provides services, bill in advance. The same goes for products sold. Ever wonder why those late-night telemarketers insist on credit card or C.O.D.?  Because they can!  At the very least, think about requiring partial payment in advance, when work is partially completed on a job, or after you’ve shipped a portion of an order. If you do have to accept accounts receivable, include favorable terms in your sales agreements. 

Check on customers up front 

I know you want the sale. We all do. And I know that the prospective customer seems like a good person. They all do. But before you ship anything, do some checking. Use a credit service or talk to a few references.  The more you do in advance, the less trouble you’ll have later on.  When you take on new customers, establish credit limits for each company and stick to them. Make sure you have a company-wide process that ensures no goods are shipped when the credit limit is reached. This way, if someone doesn’t pay, your losses are limited. 

Get invoices out the door immediately 

It may be easier to bill at the end of each month, but that practice is a cash killer.  If your customers aren’t going to pay you for 30 days (if you’re lucky), then the least you can do is to get them your invoice as soon as possible. Most good accounting programs allow you to e-mail invoices. There’s nothing quicker than that (although you should check to make sure the e-mail was received and not tripped up by a spam filter). Make sure the invoice is going to the right person, too, by specifically requesting that information in your purchase order or contract. You don’t want your bill to go to Cleveland when the payables office is in Sarasota.  When an invoice goes out to a customer, call to confirm receipt and verify that the information on the invoice (i.e., the purchase order number, part numbers and so forth) is the information required, that the invoice went to the right person, and that it is scheduled for payment. Keep careful records of your phone conversations.  Follow up on the e-mail invoice with a hard copy in the mail. 

Watch the calendar — and set up an alert system 

Once the invoice is out the door, the clock starts ticking. Especially when the invoice is a large one, it helps to call a few days before it’s due to reconfirm that it’s scheduled for payment.