Having accounts receivable- i.e. money owing to you by customers for services rendered, has an upside and a downside. The upside is that you actually have clients. The downside is that your company’s available cash flow is diminishing. It is difficult to collect amounts due when you have lost track, can’t find the invoices, or perhaps didn’t do an invoice, and you don’t actually know how much you are owed or when it was due after the last notice. If this sounds familiar, read on.
Your best option, once you have more than a few clients, is a software system so tracking accounts receivable can be automated. The software program should fit your budget! Many software companies have programs aimed at larger companies, and their costs reflect that. Be discerning and thorough about what is essential and what is not when it comes to accounting software packages for your business.
Having easy access to information about your accounts, having policies in place, procedures to follow, and knowledge about your clients’ business and/or payment options at your fingertips, makes your life easier. And, structure without emotion can make them more comfortable and more likely to work with you to pay you when times get tough.
Below are some steps to help prevent, manage, and increase potential for collecting on accounts receivable:
- Track your Accounts Receivable with Software: Google ‘accounting software programs for small business’ to begin perusing what is available.
- Create a new contract for your clients that lays out more clearly expectation of payment, percentages, and time frames, and what steps will be followed if timely payments are not made. Use language that will help the client make decisions regarding payment and, keep them as customers.
- Provide your customers with options/alternatives to payment up front if you can determine that payment is going to be difficult for them. Think about discounts rather than interest penalties, or payment over time. Moving to credit card payments may lose you a percentage, but it means you get paid and the responsibility for non-payment moves to the larger credit card companies.
- Establish policies and procedures to make handling overdue accounts easy for you and/or your accounting staff regarding types of payment available.
- Set up short time lines and a series of action processes that provide you and staff with clear guidelines for taking initial action to get payment. Quick action reduces stress for your customers, you, your staff, and your bottom line.
- Determine your stated organizational values and how and what processes for managing accounts receivable fit with them.
Managing accounts receivable in a service industry where personal service, creative design, or intellectual property is involved is often problematic for the business owner and front line staff who have to deal with tense customers. It can also create significant problems for production and manufacturing companies dealing with wholesalers, subcontractors, suppliers, or a supply chain. Having structure makes a difference.
And in the end, if payment is not forthcoming, you need to carefully weigh the cost to you, so evaluate:
- hours taken that will not be spent on clients or customers who are paying you, or
- time you are not able to use to network for potential new clients;
- the personal cost of additional stress
- legal fees that take money from your bottom line with no guarantee of return
- benefits and public image cost of hiring a collection company
You need to consider your current hourly worth, how you deal with stress, what your legal fees might tally up to, and the dollar amount unpaid, before looking at collection agencies, small claims court or civil court for attaining compensation.
As a coach, I recommend staying far, far away from anger – which decreases your ability to think clearly, and from any thoughts or actions that reek of revenge. Neither of these two emotions is likely to lead to good results for your business, whether you get paid or not.
Sometimes, it is best to accept non-payment, count it as a lesson, improve your policies and procedures, develop alternative options for future situations, learn the lesson, and move on.
For more help with accounts receivable, talk with a business coach, or find a mentor.