Nothing focuses a business on Accounts Receivable like a cash crunch. The business appears to be cruising along, growing nicely and all of a sudden there is barely enough to cover payroll…what gives?
Well, often what gives, is the leaders have taken their eye off the accounts receivable ball. Yea, that awful activity of having to call and tell the customers (the ones that you worked so hard to get) that they need to pay you. It’s the same role that you perhaps assigned to your office manager or at best have the new person in accounting working on. Suddenly, the lack of focus on this mundane task threatens the entire business.
What next? Often what happens is the owner gets directly involved and reaches out to the clients he deals with directly. Those clients tend to be the big ones and when he collects from a few of them the business get over the hump allowing the owner to get back to what he enjoys doing. The problem is that unless there are fundamental changes the same thing will happen again.
The next step needs to be focusing on “Singles and Doubles”. The Owner just stepped in and nailed a home run but a home run every once in a while won’t produce many wins. First there needs to be a process to follow up with all accounts whether they owe $1,000 or $50,000. The process needs to have a consistent set of milestones such as:
- Past due 1 week send reminder e-mail
- Past due 2 weeks follow up with phone call
- Past due sixty days send to third party collections
There will be several steps between 2 and 3 but the key is that the owner and the client need to understand that if the client doesn’t pay the will go to collections. Let’s face it, clients pay their bills, if they are 60 days past due they really aren’t a client. Also the key executive such as the Owner or Chief Financial Officer needs to be involved on a regular basis. This should be through review of results versus metrics and, hopefully, not by stepping in to make calls. By following up consistently with every account i.e. hitting singles and doubles as well as actively managing the process the cash issues will miraculously disappear.