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Managing Your Receivables
January 13, 2010
Making the sale can be a very difficult point in any business' operating cycle, but just as critical, if not more important, is the collection of that sale. The longer an account goes unpaid, the harder it is to collect. Many small to medium size businesses do not have their own dedicated collection department. The accounts receivable clerk acts as the collector. So what can you do to help ensure the payment of that sale that was hard to close?
- Make sure the customer is credit worthy. If you are dealing with a new customer that you don't have experience with, consider spending some money to have a credit report ran or request credit references and call several of those on the list. Get in the habit of setting a credit limit for each of your customers. Any type of sale is not a good sale - only collectible sales are good sales.
- Have a person responsible for collection follow-up. Be proactive and committed to your collection process. Have a person who is responsible for following up on past due accounts. Make sure that the person assigned this responsibility has the time for it and will not simply do it when they can get the time to do it. Set guidelines for when you call and how often; then follow the guidelines that you set up. Avoid sending overdue notices week after week. They will simply be thrown away. Get on the phone and speak to a person.
- Call customers before the receivable is due. Several days before the accounts receivable is due, call the customer to make sure that everything is okay and to let them know that you are calling them as a courtesy to ensure that the check goes out on time. Often companies will hold payment because something has not been complete or there has been a miscommunication about what has been complete; however, the seller does not know there is a problem until the payment becomes past due. This practice allows for a more timely correction of any problems and collection of the receivable.
- Offer discounts. If you offer a discount for payments within a certain period of time, your customer may take advantage of the discount and pay your invoice before another company's who does not offer a discount.
- Collection Agencies. As a last result, you may have to consider a collection agency to collect the money. Unfortunately, there is an expense with this approach and future sales to this customer will more than likely not occur.
Stay on top of your receivables! We are in tough times and you can appreciate that your customer may be facing a financial hardship, but you have your business to run and your employees to pay. If you don't receive payment, you may have to borrow money from a bank to meet your obligations while you are being the bank for your customer. Remember, the key to receivables is to be proactive!
