As month-end and quarter-end close in, many creditors scramble to clean up receivables. They look at their accounts receivable aging to see how many customers haven’t paid. They make calls to find out why invoices are being held up. The usual practice is to wait until an invoice is past due before asking what happened. Why not get ahead of the game?
A Little Preventive Care
There are several good ways to get ahead of the problem. A little preventive care can speed up many receivables, perhaps even getting them paid ahead of due dates.
Upgrade your accounts receivable system. An archaic or inadequate software system can slow collections to a crawl and never have the data you need to optimize credit and improve credit-to-cash processes.
Review your lockbox situation. You may not be using the most convenient or most efficient mail location for payments from your customers. You may be used to having a lockbox at the local bank, but a periodic study might show you that your volume justifies more than one box, or that a better location is available.
Deliver the invoices on time. Make it a company rule to send invoices on a schedule that allows timely mail delivery, and make sure each invoice includes all the details you know your buyers expect. Print payment terms and late interest on the invoice. Some companies have had success in speeding up collections by moving from billing twice a month to billing weekly, for example. They learned that many of their customers cut checks once a month, so missing the run for even a couple of days meant another 30 days.
Up-to-date technology really counts in payments. E-mail, direct imaging, EDI, electronic bill presentment and payment, faxes, voice mail - some of these or all of them may help get you paid faster. Adjust the technology to fit the customer’s bill-paying methods.
Establish your billing terms before you ship or start a service job. Check at the point of sale to make sure the buyer has agreed to your payment terms, and agree on the best way for them to pay you. Maybe it’s more effective to bill the user of the item or the buyer in the purchasing department, instead of sending invoices to Accounts Payable.
Sometimes it’s overlooked, but a company that makes it easy to pay will get paid faster. Accept the customer’s standard method of payment and leave no doubt where the money’s to be sent. Taking care of details such as correct spellings and titles, and clear phone and fax numbers will help, too. Make sure you enclose a return envelope. The invoice itself should be legible and not be hard to post for accounts payable to record payments in their books.
It pays to know your late payers. Some of them never pay until after you call or send a second notice. When a good paying customer suddenly pays later, ask what’s changed with the customer that’s causing the payment lag. Figure out their buying, recording and payment habits, and you’ll have a better idea how to handle them.
Ask Yourself a Few Questions
We’re often too ready to lay blame on the customer for non-payments. It helps to do a little looking inward to be sure we aren’t causing the problem. Ask yourself a few questions.
Did we deliver the right goods? Did we keep our promises on delivery? Do they arrive as promised, in good shape?
Do salespeople make promises to customers that can’t be met by the production, service or shipping departments?
Is your invoicing accurate and on time? Does the invoice go to the right place and to the right person? Does the invoice show full details, including contact names and phone numbers for questions?
Do we follow up with customers on a regular basis?
Do you use a collection agency and, if so, how promptly do you turn over unpaid accounts?
The Collections Effort
It helps to set up a collection timeline. Call to confirm the customer has received the invoice seven to ten days before it’s due. Ask whether there are any problems or disputes over the shipment. Find out how they plan to pay. Call again within a week after the due date. Find out about the delay. Ask for commitment to pay by a certain date, and get it from the individual responsible for payment. If an account still sits after 90 days past due, hand it over to a professional collection agency. Of the methods of collection followup, a personal phone call works best. It’s harder to ignore a real live human on the phone than to pretend you didn’t see the letter, fax or email. Keep good records on your followup efforts. Write down every payment promise with its date, and then remind the customer. Let them know in words that you won’t forget, without calling them liars. ‘Just to confirm your conversation with me Monday, May 25, I want to remind you of your promise to pay by Friday, May 29, as you suggested.’
Assign someone in the credit department to collections, instead of adding collections to a job that already has too many tasks. Collecting is demanding work, even if it goes well. It takes patience and persistence and persuasiveness. Unskilled collectors who end up making excuses for customers, or are uncomfortable asking for money, will hurt your cash flow.
Bring your branch managers and salespeople into the collections effort. They’re closest to the customer, and they have the most influence over when you get paid. And, your field people are the ones who can call on the customer.
After about 30 days, contact the original purchaser and send them a copy of the invoice. The person who initiated the order has a stake in the deal and may help you. (Usually it’s not the same person who handles paying bills at any medium or large firm.) A satisfied buyer is likely to help resolve slow payment problems.
One other area you can shore up is the working relationship you have with the accounts payable managers at your best customers. Ask for the same person to handle your invoices whenever they come in, because someone who knows who you are will treat you better.
Being timely with your billings and your collections means a lot for cash flow. It means getting paid sooner with less work. The better your billing and collection habits, the closer you’ll be to the sale. When you’re trying to speed up cash flow, good collections habits are as good as money in the bank.
About Delancey Street
Delancey Street is a premier, and award winning, business debt settlement company that helps business owners nationwide. Our goal is simple: help you escape debt in a safe and legal manner. Based out of New York, we can help in 49 of 50 states. We tell you how it is; because your business and future is on the line.
