I usually think of our open invoices with clients as gas in the tank waiting to be put to use. Unfortunately our clients don’t seem to be paying their bills as fast as usual. It’s getting overwhelming. These outstanding accounts are going to bury our company and then take our house if they don’t get paid.
THOUGHTS OF THE DAY: Get others on board to help you collect as much as possible as quickly as possible. Figure out why invoices aren’t being paid. Implement new practices to manage collections in the future. Begin workout with clients that are seriously delinquent.
Don’t try and do this all by yourself. Riding herd on customers who haven’t paid can be time-consuming. Success comes from staying on top of collections every day. You have a lot of demands on your time already and you need to keep focused on the big picture, including sales, production, people management and overall direction for your company.
Figure out why invoices aren’t being paid.
Set up a team of people with specific assignments. That way you add several hours per week to cleaning up outstanding balances. Hold a team meeting twice each week to share information on what’s going on. Pay attention to who’s having success with their assignments and who needs more help.
Have someone from operations check on whether clients received delivery and are satisfied. If customers aren’t satisfied, find out what needs to be done to fix the problem, get agreement that fixing the problem will result in quick payment and then take care of it. In some cases, that may mean dealing with what was delivered, while in other cases a credit adjustment may take care of it. Decide how much authority you want to delegate when it comes to issuing credits. For example: if the credit is more than 5 percent of the outstanding invoice, or more than $500, you need to be involved. If it’s less, authorize others to routinely go ahead and make the offer.
Another person needs to check the credit standing of every client. Start with the clients who are most delinquent. Look up their credit histories with one of the reporting agencies. Armed with that information, have your people contact their finance departments, find the people in charge and ask, “What’s the holdup?”
Implement new practices to manage collections in the future.
Develop a report listing all customers with columns describing reasons for delay: new invoices, dissatisfied, customer policy to pay late, customer having financial difficulty, etc. Record the dollar amount due, by customer, in each column, so you can see the size and source of the collections problems. Develop a second report listing all customers, with amount — due columns: current, 30 days, 60 days, 90 days, more than 90 days — your accounting system should be able to produce this report for you with the push of a button. Focus on working down the oldest balances first.
Begin workout with clients that are seriously delinquent.
Anytime you hear that lack of payment is tied to the customer’s cash flow, jump on it and do everything you can to get your company to the front of the line. Find out who has authority to issue payments. Negotiate terms with that person. Get a weekly schedule of payments in place and call every Monday to find out if the check was issued last week and what day this week another will be going out. Accept credit card payments. Issue a lien. Hold up future work. Do anything to get paid as much as possible as soon as possible.
If your team isn’t getting anywhere, send the invoices to a collections agency. Let the professionals do their job. Even if the collection agency takes a significant portion of what’s collected, you’re getting some money in and freeing up time to focus on accounts, which are more likely to yield results for your bottom line.
LOOKING FOR A GOOD BOOK? Try “Essentials of Credit, Collections, and Accounts Receivable” by Mary S. Schaeffer.