Successfully collecting receivables requires a system.

Successfully collecting receivables requires a systematic approach.

Receivables are your life blood, your cash flow, your operating income, the gasoline for your engine.  You have prepaid by investing in the production and your overhead costs so you had best collect your receivables as rapidly and as effectively as possible.

First check your invoice, make certain you have specific language adding interest for bills unpaid over the terms of the deal, and most importantly requiring the customer to pay the reasonable costs of collection including lawyers fees. This now allows you to collect the expenses for collecting  past due receivables, which would have to come out of your pocket if you fail to include specific language on your invoice.

We have all seen it, and it is expected and accepted, its appropriate.

It is critical that you create an overall credit and collection plan and systematic approach. Everyone  involved, salesperson, customer, credit manager, owner, who ever is in line to help collect,  be involved in the process be it  daily, weekly or deal by deal, the information must be timely shared  and acted upon for appropriate response.

Everyone, especially the customer, should be aware of the terms and conditions of doing business and what happens when you breach the agreement.

The sooner you get the invoice out the sooner you get paid. Best is to include the invoice with the shipment if possible, so it gets there simultaneously. If this is impractical, mail it as soon as possible.

Depending upon many circumstances, you may want to consider calling the customer a few days prior to the bill coming due and not only reminding them, but begin to discuss details and possibly provide missing paperwork, necessary for paying a bill.

Another purpose of the call is to find out as soon as possible if there is a payment problem, the sooner you know the sooner you can begin resolving the issue.

Consistency, dependability, follow through, your customers must know exactly what the rules are and exactly what can be expected for any variety of breach issues and you must do exactly as described. Consistency, reliability and reputation must be consistent.

I strongly recommend a quick justice approach, and I would begin in 32 days.

Which brings me to the point of collection agencies. A waste of time from my perspective as all that happens is an exchange of information  and then an acknowledgement that they cannot pay what is due, so lets get there as quickly as possible, and skip the collection firm and go directly to the pre-suit letter from the law firm…very effective.

It will either get you immediate payment action or it becomes more expensive for your customer and you get paid in a while, maybe a long while, but paid. Write, wait and then file suit if no response …that works, and the customer pays for the expenses.

If your strategy is to work with your customers and design customized payback plans, you are begging for problems, and I do not recommend it as in the end you will lose far more then following the path I am describing and recommending however sometimes it is a reasonable response. This should be a case by case decision and there should be a process, a system by which this is considered.

Continuing to ship again to a client whose invoice goes old, over 32 days, should be avoided and should signal a shut off.

Shipping a second time while holding an old invoice happens all the time and then predictably the second invoice gets old and we now have two collection issues. The client should have been shut off immediately on the 31st day of not paying. Why ship again?

When the bill is due an immediate call should be made, if payment is in the mail its going to be late so you are entitled to commence the collection process and should. If its not in the mail its going to be later, so let the games begin…as soon as possible, go right to counsel.

Use e-mail, its quicker.

Include your sales force in this process as they are the first and best to explain your credit terms to new customers and since they are making a commission they need to know exactly how to qualify a customer for terms and what happens to them if they go more then net 30 or next 60.

The sales force will be very motivated, ro make good sales as their commission and relationship with their customers are at stake if the deal does not work out. Be careful however as they are working for their commission  so they will do everything thy can to keep the sale intact.

Do not let the sales people get involved in the credit side but definitely include them in the collection side. You may want to use them extensively until you go to the lawyer. This works well if managed well and if everyone knows the rules in advance.

The sales person must take responsibility for a bad sale, and help collect.  Commissions must be charged back to the sales person if already paid or cancelled if not yet paid.

Make certain you have an excellent paper trail, or at least the availability of paper by merely printing available computer documents, invoice, purchase order, contract, shipping manifest, packing slip, proof of delivery if possible.

Train your staff to be consistent, even handed, courteous, respectful but committed to professional standards of effective collection, no negative emotion. The key to success is consistency of process and action, and professional respectful demeanor.

Invoice quickly, call in a reminder, collect promptly, go to legal quickly, track monitor and control all information. Read the reports and inquire about every over thirty client. Track monitor, and control. READ THE REPORTS

Someone must manage the legal process as well, and work the law firm as closely and effectively as they work the outstanding accounts receivable. Follow up, demand reports, and insist in consistency and action, and of course results. Have an established plan and flow of information and do as much of the work for the law firm as possible.

Obtain credit card authorization in advance usable at the 32nd day after invoiced, by agreement in the credit application.

Acquire personal guaranty if possible.

File UCC’s and  a security agreement if the deal is large enough and you are extending credit for it. Becoming a secured creditor is a very powerful guaranty. If appropriate file a mechanics lien as soon as you can, it is released with payment, not a problem.

Have credit ceilings so no one can open credit and then expand it dramatically without someone reviewing the deal and making certain the client can handle the bill when it is due.

Get and check credit references. Make first order or two payable in advance, until credit is established.

In the end it is far better not to ship then to ship and not get paid. Call me for help 413-549-2966.