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Cash crunch? These simple habits improve accounts receivable turnaround – Part III

Collecting Accounts Receivable is an important part of every business. Here we use a recent textbook accounts receivable “what not to do” as an educational example. In the first and second installments we met Bob Businessowner and heard the unfortunate tale of his year and a half old invoice. We learned how Bob could have been paid 60 days sooner, we also learned that Bob failed to check in with his customer and had no idea that his invoice had been lost in the mail. In the third installment of this four part series we will use Bob’s missteps to demonstrate another easy habit that we can adopt to improve our accounts receivable collection timeline.

Quick Action – Maybe in this case, it’s understandable that Bob didn’t immediately see a red flag when there was no payment on October 10th. Remember, Bob’s customer was on a “pay-when-paid” agreement where it’s pretty common for the customer to take 60 days to pay. But by the time Bob was roasting the turkey and hanging tinsel on the tree, alarms should have been ringing. Generally speaking, Bob should be contacting any and all customers who have exceeded the terms on his invoices. Often the bottleneck is a simple fix. A missing W-9, an invoice lost in the mail, an approval person on vacation or the unexpected departure of an accountant with a stack of bills left in limbo. There are 100 innocent reasons Bob’s payment may have been delayed and most customers are happy to get the ball rolling on payment once they are aware of the problem. In this example, if Bob had called his customer in November; he would have learned that the customer moved and that his invoice never got to them. Processing could have begun and Bob could have been skipping off to the bank before New Year’s Eve. But there Bob sat, waiting oh-so-patiently to get paid. He sat and sat and sat, or maybe he was so busy he didn’t notice that he was owed money. If Bob is that busy, maybe he should contact My Staff Your Staff for some help with his accounting. Sadly, the more likely scenario is that Bob’s money situation became so desperate he was finally forced to contact his customer on this seriously overdue invoice.

You may be wondering how Bob could have let the invoice go for so long. Like so many business owners, Bob thinks that money talk is insulting. I’m just going to come out and say it; we all need to get over that! A business relationship is founded on the agreement that goods or services are exchanged for payment. Discussing money with a customer should have NO negative connotations; it is not the same as discussing money owed with a friend, family member or lover. Bob did the work, he earned the money, he has honored his part of the agreement; therefore Bob deserves to be paid and he should never feel shy about discussing payment with his customer. Rather than thinking that he insults his customer by talking money, Bob should be wondering why his customer insults him by not paying.

The bottom line is that to help his bottom line, Bob needs to call his customers, he needs to call them as soon as they go past due (if not before), he needs to call or email them frequently to check in on how his payment is processing, and he needs to send monthly statements. The squeaky wheel gets the oil and Bob should remember that he is training his customers through his actions. Does Bob want to teach his customers that he is the vendor who must be paid promptly? Or that he is the vendor who will wait patiently while they put him off for months? Bob is not a bank so he should teach his customers that they cannot finance their business operations on his dime. Do you have a policy in place for swift action on past due accounts?