The saying goes, "An army travels on its stomach." In other words, without food you don't have much of an army.
The same could be said about a business; instead of food – it's cash. And, we all know that, "money doesn't grow on trees." But, a lot of cash could be stuck in your accounts receivables.
A TD Bank 2015 survey of 508 small business owners showed that bookkeeping was their least favourite task. It's no surprise, considering 58% of them worked 60 or more hours a week.
While the survey did not get into specifics of which bookkeeping tasks were the least favourite, it's a safe bet to say that collecting A/R would rank close to the top of things to avoid.
Even in larger businesses with a dedicated person or people in an accounting department, consistent A/R collections can be challenging. It makes sense too, as most bookkeepers love the 'cut and dry' of accounting, but are not so enthralled with asking for money from people who are trying to avoid their call.
So, what is a business owner or organization to do? Make collections a habit.
To make A/R collection a habit or routine, you will need two things: a process to follow and the discipline to carry through on the process.
A sample process could be:
- 30 days: Call the customer to inform them that the invoice is past due and ask when you can expect payment. This initial call may uncover issues that are preventing payment. Don't just leave a message — keep calling back until you speak with someone knowledgeable.
- 35 days: Mail first letter
- 40 days: Second call
- 45 days: Mail second letter and put customer on credit hold
- 50 days: Third call, made by business owner or other senior employee
- 55 days: Final letter demanding payment or account will be turned over to collections
- 60 days: Engage third party collections agency or lawyer
Just like your weekly staff meeting, time needs to be set in your calendar for working your A/R process.
Finally, a system for tracking the results of calls, client promises, etc. needs to be in place so that you don't have to spend any time or energy figuring out what needs to be done next.
Accounts receivables is found money if you focus on collections. Ask your Certified Professional Accountant (CPA) to show you the potential difference in your cash flow when you take care of your accounts receivables.