management

ten strategies for smart a/r collections

if there are pattern changes, examine why.

by ed mendlowitz
77 ways to wow!

important: the longer it takes to provide the bill, the lower the likelihood of getting paid in full. the value declines as services are performed with the lowest value when work is completed.

more: be wary of discounting prices | the role of strategy in pricing | wow clients with trend analysis | 26 ways to wreck a financial projection | three ways to run a break-even analysis | price not always the top consideration in a sale | when an owner dies without a buy-sell agreement
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eight notes on billing strategiescartoon illustrating "the quicker you bill, the sooner you get paid."

  1. retailers get paid at the point of sale.
  2. wholesalers and distributors usually send (by postal mail or e-mail) or provide an invoice when the products are shipped.
  3. service providers can get paid in advance, a retainer before work is started, provide progress billing or a bill when services are completed.
  4. wholesalers and distributors, contractors, and most service providers get paid when or after they present a bill.
  5. occasionally a third party makes the payment, such as a credit card company or health insurance company.
  6. sometimes bills are presented before work starts, either for a partial payment or payment in full.
  7. sometimes bills are not sent at all.
  8. shipments can be made cod or cbd.

collecting

generally, if you’re not getting paid before the work is started or when products are sold, then you must make an effort to collect for the work you performed or the products you delivered.

if it is reasonable to expect to be paid based on the payment terms decided upon before you started your work or made the shipment, then you must enforce the terms by asking for timely payment.

regardless of how diligent you are or start to become, it seems there’s always a customer or two who’s very long past due.

here are some approaches to handling the problem.

checklist: practical strategies for problem situations

  1. to avoid continued shipments to slow or bad (the same) payers, establish a credit policy and cut off shipments when past due amounts go beyond that policy.
    • for example, if your policy is not to ship when a customer is 90 days past due, do not accept any more orders. the consequence of this is that you will be cutting off a customer who owes you a substantial amount – that doesn’t seem like a good business practice. an alternative is to make the past due period a lesser period, say 30 days.
    • a way to avoid any major unpleasantness is to have a minor unpleasantness, such as calling on the first day a balance is past due, e.g., if terms are 10 days, call on day 11; if terms are 30 days, call on day 31.
  1. check credit references or credit reports before accepting a new customer.
  2. be responsive to changes in buying patterns. for example, if a customer’s orders are usually $10,000 a month, and now they are ordering $25,000 use that as an alert of a change in the customer’s situation. question: considering that $25,000 is extreme in this example, what size change in orders would alert you to a possible change?
  3. be aware of customers who change the products or product mix of what they order and find out why.
  4. periodically check credit for existing customers; however, watching their payment patterns and history is usually the best indication of their creditworthiness.
  5. be sensitive to a change in payment patterns. a customer with 30-day terms who always pay in 10 days and now starts paying in 20 days is a potential danger sign, although this will not show up on any report.
  6. look at customer returns and try to determine the reasons for the returns. quality, discontinued products, old merchandise, an over shipment, an overorder or something that was just received at a higher price and will be reordered at the lower price?
  7. if there are substantial balances, consider:
    • taking life insurance on the owner.
    • a “real” personal guarantee of the owner. if the person giving the guarantee puts a title after their name, it might not be a valid guarantee – check with your attorney on this and everything else that involves a signed document, agreement or contract.
    • a confession of judgment that could be executed if future terms are not adhered to.
    • getting a lien on the inventory.
    • shipping new orders on consignment until paid for.
    • putting a customer on a “c.o.d.” plus 5% or 10% toward past due balances basis. c.o.d. could be real c.o.d., or a check sent with order or any other arrangement that does not increase the accounts receivable balance. this could include charging the customer’s credit card.
    • a series of weekly checks for the past due amounts.
      • if you get 26 weekly checks for the equivalent of 16.67% of what the customer owes you, you just made a deal to get paid the past due amount over three years.
      • you can add interest and decide to credit back the interest if the full balance is paid by the end of the three years.
  1. try to see if there is something you can buy from your customer that can reduce the balance due you.
  2. in the end, if all else fails, tell the customer that if you cannot come up with an acceptable payment arrangement, you will have to turn over the account for collection. and you will then be losing that customer’s future orders – if they remain in business.