Collection problems do not exist in vacuum. You do not have a good client one day and then suddenly “poof” he/she turns into a deadbeat. Customers who pay regularly start when you make a decision to extend them credit from your business on net terms are normally a good bet. What clients to take, your terms and credit agreement, your communication with the client and your billing process. None of these decisions are taken lightly. Listed below are some tips that you can start to use if you want to improve some of the problems that you have collecting some of your accounts receivable. If you begin to use some of these techniques and continue with them, you can improve your collections and cash flow. These tips will work regardless of whether you are a solo or in a small firm.
Unfortunately even when we do everything right , you can still have a problem collecting your money.. You must be diligent when dealing with your accounts receivable. You must make certain that you review your aged a/r on a weekly basis. In small firms, everyone should understand the importance of collecting the accounts receivable.
As with billing, time is of the essence. Statistics show that an invoice over 60 days has only a 70% chance of being collected in full. After 90 days the chance of collecting the invoice in full drops to 45 % and after 120 days, it falls to 20%.
UNDERSTAND THE WARNING SIGNS WELL, THEY LOOK and SOUND LIKE THIS
- Cash Flow issues
- Breaking/Broken promises to pay
- Sorry I can’t pay you until I get paid
- Owner/President is never in or always in a meeting
- The check is on it’s way (never seems to show up though)
- Lots of others that in house we tend to ignore can be blaring sirens saying WARNING DANGER AHEAD!
All firms should be using one of the time and billing products available for solo and small firms. Learn about the reports that are available and use them. You should be able to generate the following information from your time and billing system on all of your clients and you should review this information regularly:
1. How much each client owes you in total and on each separate matter
2. How much has been billed to date
3. What is total work in progress and how old is the work in progress
4. How much work remains to be done if any.
5. What is the payment history of this customer now turned debtor
6. Your payment terms or agreement with the client
7. Other factors such as whether or not the client is a fantastic referral source or is the brother-in-law of the president of your best corporate client.
COLLECTION TIPS AND TECHNIQUES
Concentrate your efforts on your current and up to date customers.
Every company in America all have clients and former clients that have been allowed to get too far behind. Do not allow our past errors to prevent you from making certain that we allow our current customers to get too far behind in payment.
Develop a collection policy.
The policy should be simple to administer and enforce. It should address what should be done when a client goes past 30 days, 60 days and 90 days. For 90 – 95% of the cases, the process should be automatic. Get some professional help at that point or you may NEVER SEE YOUR MONEY. It can be a simple as sending a letter after 30 days to determine if there is a problem or having an office manager contact a client. Keep in mind that you may have to have two separate policies – one for new or current clients and one for clients that have serious A/R problems. It is unrealistic to think that if a client has been a problem for some time that simply putting in a new policy will get the client to pay more quickly.
If an a/r is over 6 – 12 months old, it is possible you are not going to collect anywhere near 100%. Consider 50% if the client agrees to pay immediately. At this point you must take action as soon as possible and hope for the best.
Communicate with customers as much as possible. If you get a professional involved then stay out of it and let them do their job.
Do not avoid discussing collection of your money with the customers in question. If you are providing quality services and are charging fair and reasonable prices, you should be paid for those services.
Contact Customers When They are Late Paying
Have someone in your firm or if necessary a part-time person hired just for collection to contact clients when payment is past 30 days or when they do not live up to a payment arrangement. Follow up is the key. If the client knows they are going to be called they are more likely to live up to their obligations.
When Phoning for Payment, Make Certain You Contact the Person Who Can Authorize Payment
Regardless of who in your office does the phone or mail contact, make certain you talk to the right person. It is no good to talk to someone who has no authority to approve payment. This will slow the process.
Stop Selling to them if the Customer Does Not Live Up to The Payment Agreement in Place
If you monitor your A/R regularly, you may catch payment problems early enough to salvage the customer.
Consider Taking Credit Cards
Consider giving a discount for paying with 15-30 days
This will speed up cash flow if that is an issue.
Depending on the Company, Find Out When They Cut Their Checks
Some businesses cut checks on the same day every month. If you can find out that date, make certain that your invoices are mailed to coincide with that date.
If You Agree to a Discount, get a Quid Pro Quo.
If you agree to discount an invoice to get quick payment, consider saying something like you will agree to reduce it by $75.00 if payment is made immediately.
Consider Hiring a Part Time Person to Monitor Your A/R.
This person’s sole responsibility will be to contact clients. He/She will meet with you to discuss problems and then given the task of contact all clients with collection problems. This will be money well spent.
Monitor Your A/R Weekly. Age Your A/R Monthly.
Today’s time and billing systems like QuickBooks or PeachTree make it very easy to run an accounts receivable weekly and to age it monthly. This will allow you catch problems early.
Monitor Collections and Deposits Daily
Know which clients have promised to pay and when. You can use MS Outlook to keep an automatic list of when payments are due. Enter the information and the date the payment is due and it will remind you on that date.
If You Have Employees Make Certain They Know Your Collection Policy
Employees are fully aware of those clients who do not pay. It is very important that all your employees know your policy and your firm’s commitment to it.
I can’t stress enough the need to get help before it’s too late to do so. When their phone number is turned off it’s too late! Next time I am going to outline what to expect when employing a professional service to get you’re A/R collected. Some do’s and Don’ts and what to watch out for and other pertinent details.
DIRECT RECOVERY INVESTIGATIONS SERVICES
SOMETIMES YOU JUST A TIGER IN YOUR CORNER
WE CAN BE YOUR TIGER TOO.