Accounts Receivable

March 28, 2008 at 4:57 pm 1 comment

Getting work is the goal of every business, but even more important is getting paid for that work. There’s been much talk lately about how the economy is taking a downturn. This seems to cause many people to try and hold onto their money for longer, meaning they are paying their bills more slowly.

Not getting paid on time plays havoc with a business’s cash flow costing money and stress. When the money doesn’t come in on time, the business owner can’t pay their bills and that costs money, either through line of credit interest or late charges. Or there are lost opportunity costs of what else could be done with that money.

Getting paid on time comes down to doing 2 things:

Make your credit policy explicit.

Have logical consequences.

Think about your credit policy. When will you extend credit, for how long, how much, what will it cost your clients and what will you do if they get behind?

Make sure your clients understand that if they don’t pay you when the work is done, they are getting credit. They owe you that money and the clock is ticking on it.

Make sure your clients understand when you expect the money. That you are not just letting it go until ‘later’ but that you need it by a certain date.

Remember that the bill with the highest interest rate is the one that gets paid, so make sure that you, quite logically, charge them for their use of your resources.

Finally, have a step by step procedure in place for when things aren’t the way you expect them.

It could go something like this:
1. Make it clear when you expect your invoices to be paid before you do the work.
2. Send invoices promptly
3. Send a statement every month with finance charges for unpaid balances.
4. Once an invoice is 15 days late send a copy of the invoice with a coloured stamp stating it is overdue.
5. Once an invoice is a month late call and ask for the payment, making it clear they have broken your agreement.
6. If it remains unpaid after they have promised a payment, suspend work with them until they pay.
7. If it reaches several months and they have stopped taking your calls, then it is delinquent and you will have to take it to the next step. That usually involves making a concerted effort to collect on your part, sending it to collection, taking legal action, or writing it off.

This is most people’s least desirable part of running a business, but it is vital to running a profitable business. Business owners have responsibilities to pay their bills, your staff, their obligations and their family. That means collecting the money due in a timely manner.

So take a deep breath and do what needs doing.


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1 Comment Add your own

  • 1. Michelle Dunn  |  March 29, 2008 at 10:59 am

    This is a very good and very timely post.


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