Collecting and Monitoring Accounts Receivable

Cash flow, stupid. It’s the sign that should appear in every entrepreneur’s office. One of the key elements of running a successful business is managing your cash flow. Billing and collecting your accounts receivable (A/R) in a timely manner is a key component to healthy cash flow. The entrepreneur needs to have a way to monitor their A/R at least on a weekly basis.

Why do we have A/R? When we do not get payment at the time of delivery for our product or service, then the customer owes us money. Not all businesses are able to collect payment on delivery of their product. However, you should always attempt to get a check or credit card at the time you sell your product or service. When we do not get paid right away, we set up a receivable which is a short term loan to the customer for the next thirty to ninety days. (For a good overview of A/R, check out Mike Herman’s video presentation.)

You are not a bank. This is the second sign that should appear in every entrepreneur’s office. Giving credit to clients is a privilege granted by the entrepreneur. It is not in the customer bill of rights!

Many of us are timid about collecting our money from our clients. It is a difficult topic to talk about, but if your company did the work or delivered the product then there is nothing wrong with asking to be paid. Don’t be uncomfortable. It is your money and if you are to pay your own bills, you need to collect it. The last time I checked, you can’t pay your bills with your A/R.

People respect what you ask for. Customers actually respect those vendors who recognize the need for cash and press hard for collections. This is not a sign of weakness but simply the sign of an entrepreneur that runs their company well. If at all possible, don’t give credit to your customers. If this is not practical, then try to get a deposit. If this still isn’t an alternative, set a short time from the date you send the invoice until the due date. Try “payable upon receipt” or net ten days.

Getting the first payment from the client is always the toughest especially if you are doing business with a large corporation. It is critical that entrepreneurs figure out the approval path in matching the invoice to their purchase order even before the approved invoice gets into the queue for payment.

Before you do the work, ask your customer if there is anything you need to do, like providing your tax ID number, to get set up in their system. When the first bill is sent, call the company to check if the bill was received, and ask when it is scheduled to be paid. Right before it is scheduled to be paid, call again to see if the check was sent. If you find it did not make this “check run,” then ask when it will be sent.

Most companies want to pay their bills. They will in fact appreciate these gentle reminders from you if they are done in a polite and respectful way.

Customers that do not pay their bills are not customers; they are collection problems. This is the third sign that should appear in every entrepreneur’s office. You should not do business with these types of customers. Do not continue to ship products or perform services for anyone who has overdue payments. It is your best leverage for them to pay you. Once the A/R is paid, ask for a deposit for the next order or insist they pay by credit card.

If you read the signs, your customers will pay your A/R on time. In turn, you will have the cash flow to pay your bills on time and have cash left to pay yourself and grow a successful company.