Last time we talked about using Accounts Payable or vendor payments to help manage your cash flow by negotiating discount terms, delaying payment, and using credit cards.
Now let's talk about Accounts Receivable.
- Have a stated plan for managing your invoicing and receivables and stick to it. Decide what the course of action will be for invoices overdue at pre-determined aging dates.
- Stale accounts of more than 60 days are getting to a point where they may be noncollectable.
- Make sure to read the Federal Trade Commission (FTC) Fair Debt Collection Practices Act so that you don’t violate the debtors rights. The person who owes you money unfortunately has more rights here than you do.
- Invoice clients regularly! You need to decide if this is after each job, at the end of the month, or a set time each month. The invoicing schedule may vary for clients but you need to know when you are going to invoice a client even before you start the job.
- Get retainers or pre-payments if a job will require a large outlay of money. Let the customer bear some of the burden of their job upfront. This reduces the amount that you may lose if the customer becomes a problem, is slow to pay, or ends up not paying at all.
- Tighten your credit requirements and take a credit card number for a backup. That doesn't mean the card number will be any good if the customer is not paying anyone but it may give you a chance to collect some of your money. Make sure you have a signed agreement to charge their card.
- Offer discounts for early or pre-payment. Offer the same terms that we were looking for when paying our bills in the earlier post about Accounts Payable.
- Accept credit cards. Remind them that they don’t have to 1099 you if they pay by credit card. Make sure and shop around for a merchant company that offers a low discount rate. You do not have to use the merchant services through your bank. There are merchant companies that you can use that are not affiliated with a specific bank.
- Have a stated and stuck to plan for collections. This means determined aging dates, what letter will be sent out on each stated date, and when you will make personal phone calls. Make sure to read the Federal Trade Commission (FTC) Fair Debt Collection Practices Act so that you don’t violate the debtors rights.
If you are not invoicing and collecting from your clients regularly, you will go out of business. Make sure you understand and monitor this part of your business. Give us a call to see how we can help you mange this process.