Home  > Collecting Accounts Receivable
 Share  Print Version  Email

Collecting Accounts Receivable

Provided by Pinnacle Business & Marketing Consulting, Content Partner for SME Toolkit

Many companies face cash-flow difficulties because they’re owed a lot of money from customers who take their time in remitting payments. This is especially risky for start-ups and small businesses.

Eventually, some of these late paying customers have to be put through a collection process, which is not ideal to preserve a business relationship but often necessary. To make this process as painless as possible, follow these steps:

1. Always and promptly send out professionally looking invoices that clearly state payment terms and due dates. The problem with this is that you’ll owe sales tax as soon as you issue invoices, but waiting until a customer is ready to make the payment will only prolong the process.

2. Be reasonable with your terms, but not over-generous. Some companies have internal processes to  remit invoices that take time, so be sure to know what time frame you’re looking at and negotiate that from the out-start.

3. Send out statements of account at the end of each month. The statement needs to reflect the beginning balance, all details of new translations during the last thirty days, and the total balance that’s due now. Most importantly, statements must show amounts due in an aging format (e.g. past due 30 days, 31-60, 60-90, and over 90 days).

4. Make sure your customers know that you may suspend services if amounts due age over 60 days. You should start raising red flags once delinquency exceeds 30 days and then definitely minimize the potential damage at 60 by suspending further efforts.

5. Be consistent and meticulous with your collection efforts. Once a customer goes into the collection cycle, you need to contact the person in charge of accounts payable frequently (once a week). If your calls are made in infrequent bursts, they’ll figure that you’ll eventually go away again soon. Also, take notes of your discussions and refer to those in the future (e.g. But you said told me that the check is being signed two weeks ago.)

6. Don’t hesitate to escalate issues. If you know someone in management, contact them about the late invoice and ask them for support. Don’t make it a habit to call the owner, but use this powerful tool if need be to get paid.

7. Don’t make your sales people collect accounts receivable. You want their relationship with customers to remain in good standing so they can maintain contact for sales purposes. If they start making collection calls, the customer may start avoiding their calls which can hurt sales. Let the accounting people do the collections and sales people close the sales.

8. Avoid doing business with companies that are known for their delays. Chances are they’ll treat you in a similar way which hurts your business.

9. Don’t do business with companies that have a 90-day or greater payment terms unless you can handle it. If you’re cash-rich, there’s no harm in waiting, but if you’re tight on cash yourself, it’ll hurt you more and it’ll help your business to grow.

10. Never complain to others about late-paying customers. This is confidential information that you can’t share with anyone else, no matter how frustrated you are.

More often than not, customers delay your accounts receivable for non-malicious reasons. They may be short in cash and simply can’t pay you. Don’t over-pressure them, but make sure they are aware of the fact that you haven’t forgotten about your money either.

Copyright © 2016 Pinnacle Business & Marketing Consulting. All rights reserved.

 Share  Print Version  Email
Ratings (0)
If you are a human, do not fill in this field.
Click stars to rate.