Accounts Receivable and Collections

Oh boy - those are scary topics for any entrepreneur.  We'd all like to operate in a COD business (oh yeah, cash in advance is even better) but if we have have any amount of business-to-business sales, at some point we're going to have to give terms to a customer.  Keeping on top of who owes you money and COLLECTING that is very important to your cash flow.  Many small-business owners feel like they're going to insult their customer or make them unhappy if they try to collect money owed.  Don't feel that way!  You're providing them credit so you're doing them a favor. Make sure you review your accounts receivable at least weekly - and take action!

Before we jump to the point where you need to call them about what is owed, let's consider some other steps.  First off, make sure you invoice in a timely manner.  Depending on your type of business, invoice when the product or service is delivered or at the end of the period (e.g. month) if you're on some periodic billing cycle.  Remember that if your invoice arrives late, it's late getting into your customer's payment cycle.  These will seem like obvious points but:

1. Make sure you have their correct address.
2. See if they accept invoices via email and use that if possible for faster delivery.
3. For larger customers, understand their payment cycles so you make sure you work hard to get your invoices in before the cut-off for a given checkrun.
4. Use statements for late payers and be prompt in issuing them.
5. Try follow-up emails ("Just checking to make sure you received our statement").

If all that fails then you should have no compunction about making the call.  Start it soft, "I just want to see where you are with our payment for invoice 123".  Listen to their answer and be prepared to work with them.  If they say they can't pay it, look for alternatives: partial payments or converting a cash pay account to credit card or a schedule of payments if they can't pay today.  A customer with cash flow problems will be much more likely to work with you if you seem tuned in to their problems.  Empathy goes a long way, particularly if you're both small business owners. Play on their sympathy for you, "I've already paid my employees who performed this service for you".

Don't be tempted to keep selling to someone who isn't paying you under the mistaken impression that you need those sales.  Watch out that your salespeople don't get you in this position.  Sales and collections need to part of the same team.  More sales can't happen if you don't have the money to support the sale and you get that money through collecting your A/R.  Remember - it's your money!