By Andi Gray
Dilemma:I usually think of our open invoices with clients as gas in the tank waiting to be used; unfortunately, our clients don’t seem to be paying their bills as quickly as usual. It’s getting overwhelming and is starting to seriously impact our cash flow.
Thoughts of the Day: Look at the whole picture to figure out how the business is doing. Make sure you’re using credit lines properly. Be disciplined about managing the situation. Sell your way out of the problem the right way. Ideally, the goal should be to convert as many customers as possible to credit card payments.
Success comes from staying on top of collections every day, but chasing customers who haven’t paid can be time-consuming. Don’t try and do this all by yourself. You already have a lot of demands on your time and need to stay focused on the big picture, including sales, production, people management, and the overall direction of your company.
Figure out why invoices aren’t being paid. Set up a team of people with specific collection assignments. That way, you can add several hours every week to cleaning up outstanding balances. Hold a twice-weekly team meeting to share information and updates about what’s going on and the team’s progress. 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 first, then get them to agree that fixing the problem will result in their quick payment—and take care of it immediately. In some cases, that may mean dealing with dissatisfaction in the service or vehicles that were provided, 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 an 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 go ahead and make the offer routinely.
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 accompanying columns describing the reasons for their delays: 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 sizes and sources of collections problems.
From there, create a second report listing all customers, this time 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 working on a payment plan with clients who 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 quickly 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 back and freeing up your team’s time to focus on the accounts that 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.
Andi Gray is the founder of the Business Consulting Firm Strategy Leaders. She can be reached at firstname.lastname@example.org.