Every business owner knows this all important rule – a sale is not a sale until the cash is in your bank account.
When I am working with a clients to collect on past due invoices, I often call their clients to find out why invoices are not being paid. During one of these calls the business owner said “I am waiting for people to pay me before I pay you.” This person went on to tell me how no one is paying their invoices. I responded with a smile on my face and perhaps some laughter in my tone by saying, “I know there are clients that I have to call every week to pay their invoices.” They said they would drop off a check by the end of the week. This person was six months behind in paying and I talk to them every week.
Collecting payment for invoices may not be the most pleasant task of running your business, but it’s one of the most important. Not having enough operating cash when you need it will undoubtedly affect the bottom line of your business, and if cash flow is poorly managed it can even put your business at risk. Many of these issues are brought on by the Business Owner not establishing clear, consistent polices and payment systems.
Here are some helpful tips to stay on top of your accounts receivable:
- Start before the sale is made. Customer service plays a key role in timely collection of receivables. Be clear and upfront with your client about the payment amount, when payment is due and how payment will be processed. Before the sale is made make sure the client provides the contact information for billing the company, since errors provide an excuse for not paying.
- Send out invoices promptly. The sooner you invoice your clients, the sooner you are likely to receive payment. Also, the client is less likely to find problems with a prompt invoice as the goods or services provided should be fairly fresh in their minds. I once worked with a company where the owner insisted on reviewing every single invoice before it went out. By doing that invoices went out weeks and even months after the service was completed. Resulting in the company continually borrowing money just to make payroll.
- Attitude counts. You might feel uncomfortable asking clients for money. It helps to treat these calls as customer services calls, not collection calls, as you may not want to lose your client. Develop long-term business relationships with your clients. They will be less likely to delay payment if you are on friendly terms. On the other hand if they are not paying you then they are probably not a good client for your business.
- Be flexible but firm. If necessary work with your client to establish a repayment schedule but be firm in holding your client accountable to meet their financial obligation.
- Be persistent. Frequent follow up of delinquent clients greatly increases your chances of collecting. People will often prioritize payment based on how much of a hassle they expect to receive. Emails should be followed by phone calls.
No company can force its clients to pay their bills. Companies can, however, take a number of steps to ensure payment. Successful companies leverage cash flow with effective account receivables management. They recognize that fewer outstanding client balances mean fewer bad-debt write-offs — and enhanced profitability.