It’s Cash flow, Stupid. This is the sign that should appear in every owner’s office—inspired by President Bill Clinton’s campaign slogan, “It’s the Economy, Stupid”. Managing a business’ cash flow is a key element of running a successful company. Billing and collecting accounts receivable (A/R) in a timely manner is an important component.
You Are Not a Bank. This is the second sign that should appear in every owner’s office. Giving financial credit to clients is a privilege granted by the business. It is not part of the customer’s bill of rights!
Customers that do not pay are not customers—they are collection problems. This is the third sign that should appear in every owner’s office. Stop doing business with them. Do not continue to ship products or perform services for customers who have overdue payments. This is the best leverage to get them to pay their outstanding bills.
How do you collect your money from customers right now without calling Tony Soprano?
1. Eliminate accounts receivable. Try to collect payment on delivery—or even before—of your product or service. This can be done through check or credit card. When your company gets paid right away, there is no accounts receivable—problem solved.
2. Customers respect what you inspect. Many owners are too timid about collecting money from clients. If your company did the work then there is nothing wrong with asking to be paid. If you pay your own company bills, you need to collect it. Customers respect vendors who recognize the need for cash and press hard for collections. This is not a sign of weakness, but simply the sign of an owner that runs their company well.
3. Monitor the money that is owed every week. It is easy for accounts receivable to get out of control over a very short period of time. Monthly check ups in this economy are not enough. Note the customers that are over payment terms and make those calls immediately. Don't wait to see if it gets worse—changes in payment patterns could indicate a future problem with a customer.
4. Don’t give credit to customers that do not have a proven payment track record with your company. If this is not practical, then get a deposit. If this still isn’t an alternative, set a short time from the date the invoice is sent until the due date. Label the invoice “payable upon receipt” or net ten days.
5. Learn the payment process. Getting the first payment from the client is always the toughest especially if it is with a large corporation. It is critical that owners figure out the approval path in matching the invoice to their purchase order even before the approved invoice gets into the queue for payment.
Before the work is started, ask your customer if there is anything that needs to be done (like providing your tax ID number) to get set up in their system. When the first bill is sent, call the company to check if the bill was received, and ask when it is scheduled to be paid. The day after it was scheduled to be paid, call again to see if the check was sent. If it did not make this “check run,” then ask when it will be sent. Most companies want to pay their bills. In fact, they will appreciate these gentle reminders if they are done in a polite and respectful way.
Read the signs and follow these steps—your company will have the cash flow to pay its bills on time and grow a profitable company.