Are you a small business that is cash poor and receivables rich? Are you worried about how you’re going to get your clients to pay you in a timely manner without having a negative effect on your business relationship? If so, you need to take a good look at your receivables collection process, and if you don’t have one, your first step is to create one!
I once worked with a company that explained that they were very close to shutting their doors because they couldn’t pay their bills. They were a reputable small business with a number of clients and a full pipeline of work. Their problem: a very large backlog in accounts receivables. We discussed the fact that if they were able to collect all of their outstanding receivables, they would be in great shape financially. Their concern was that leaning on the clients too hard to collect the money could impact their future working relationships (i.e., the opportunity to do more business with them in the future). I pointed out that they would not be doing business with them in the future anyway if they close their doors due to their current financial issues. Bottom line, you’ve got to do what you’ve got to do to get the money you’ve already earned!
I recommend that everyone have an explicit process for billing and collection. For example, you invoice your client according to whatever terms you have in place. If payment is not received by the due date, you can immediately follow-up with them the day after with a courtesy reminder along with periodic reminders afterwards (you choose the frequency). When I was a prime contractor for the federal government, this approach was very effective. Typically, the government was very timely with payment. Often, when I called the day after payment was due, I found that something had gone wrong. Either the invoice had fallen through the cracks, not properly been routed, or something of that sort. Reaching out as soon as the payment was late allowed the investigation to begin quickly and for payment to be resolved with minimal delay (once they determined the issue, I often got my payment expedited).
If your reminders seem to fall upon deaf ears, you may need to take more hands on action. If you’ve been emailing, you may want to consider a phone call. If you’ve been calling, you may need to speak to a higher authority in the organization. In my personal worst case scenario, I had to threaten a stop work order on our part. We were working for a medium-sized organization (much more established than we were), and they had outstanding payments for us that were more than 90 days overdue. I had to explain that we had employees that we had to pay as long as they continued working on their projects, but as a small business, our ability to pay was diminishing due to excessively late outstanding receivables. In this situation, this dialogue resulted in action, and we received our payments without having to go ahead with the stop work order. I do not recommend this course unless you are very comfortable and prepared to execute a stop work order. In the very worst case scenario, you may have to send the bill to a collections agency which may or may not get you any actual payment.
Another approach is to outsource your receivables process either in whole or part. This could be a very good alternative if you shy away from playing the ‘heavy’ to get your money (fortunately, this was never a problem for me). There are companies out there that will handle all of your billing and collections from start to finish (sending initial invoices all the way to the collections process if necessary). Alternatively, you can outsource only certain pieces of your process. For example, you may choose to do your own invoicing but want to outsource the follow-up for overdue invoices. You could also do your own invoicing and follow-up and only outsource when there’s a need to take the matter to collections.
There are many ways to handle your receivables process, but please make sure you choose one and follow it. If you drop the ball on collecting your payments due, it will only hurt you in the end. Remember, you’ve already earned the money…go get it!