By Douglas Freer, CSP
Successfully collecting what your company has earned is one of the most important tasks in managing your company. Consistent and positive cash flow allows you to pay your vendors and employees on time so you can continue to provide excellent service. Let's take a closer look at a few elements of managing cash flow in your business:Invoice with accuracy
Accurate invoices produced on a regular and timely basis provide the customer with consistent information, which allows them to pay you on time. Your customers do not want to deal with unnecessary exceptions or distractions from their primary business. Make it as easy as possible for them to fulfill their obligation in the relationship. Paying you is necessary, but it is not their primary function.
Inaccurate invoices can erode the trust you have worked hard to build. The customer will begin to scrutinize invoices more carefully, and mistakes lead to more questions and a belief that your company can't handle a simple business function. Inexpensive accounting programs make it easy to create professional-looking and accurate invoices.
When a new or returning customer signs a contract, take time before the season to input the customer into your accounting program. Create "Items" specific to that customer, including the description and pricing of each service item. Invoicing after a storm event or each billing period will be much quicker and significantly more accurate if the information is preloaded vs. being manually entered.
Understand each client's specific invoicing needs. Some customers want to be invoiced monthly, weekly or after each event. Send invoices by e-mail, postal mail or fax depending on their preferences. Be sure to understand your customers' needs and to include any required reports for their accounting departments.
Manage receivables
Review accounts aging weekly and follow up on past-due receivables. The longer an invoice goes unpaid, the more difficult it becomes to collect. A delay in payment may be a simple oversight, or it could be more serious like a cash flow problem. It may even be on purpose, as a result of their perception of incomplete or poor service.
Consistent, polite and persistent follow-up is the most effective strategy for collecting on late invoices. Calling the customer is the quickest, most direct method of getting in front of your busy customer. Avoid, if possible, having the salesperson who manages the account make the late-payment calls. Assign this task to someone who has the right customer service temperament and can listen effectively to any issues the customer may share as to why the payment is late. Ask the customer for an update and for a commitment to when you can expect payment. If unreachable by phone, send a gentle reminder by e-mail or a letter and statement by mail showing the past-due balance.
Customers that are past due during the season may be more motivated to pay when the threat of suspension of service is looming—but after the season closes, this tactic is not as useful. With a very short snow season, it may not be prudent to use the threat of suspension to coerce payment. Be careful about when and how consider suspension of service. Be certain you have listened to the customer and understand their situation. A threat to suspend or cancel service is a shot across the bow that your customer may not forgive.
Charging a late fee or finance charge on open balances can be a motivator to the habitually late. You do not need to serve as your customer's bank, and "lending" them money with no interest may encourage some customers to place you lower on the payables priority list. Be careful about how firm you hold your customers to paying these fees; in a small business, generally it is best to reserve these charges for those customers that are consistently late and abuse the grace periods. Customers for whom you must regularly charge late fees or finance charges are likely not the customers with which you want to continue to do business.
Keep good records in the event that future collection action is required. Document letters and e-mails sent, phone calls made and the result of the call. Make sure your contracts are signed and clearly state the terms of the relationship. Keep accurate invoices.
Manage expectations
Before the season starts, you should know which customers, if any, will pay outside of your stated terms. Any deviation from your stated terms needs to be agreed upon in advance.
During the season, frequent communication with the customer will minimize the potential for service complaints as the reason for slow payment. Prior to invoices being mailed, it's a good idea to visit the customer or call them to ask whether they are happy with the service you've provided or whether there is anything different you could do to improve. This informal survey tells you in advance of your invoices going out whether there are potential time bombs waiting to explode. By being proactive, you are steering the conversation—and it's better to be in control of this situation rather than reacting when the upset customer calls upon receipt of their invoice.
What, if anything, can you do now to correct the issue? Resolve issues immediately while they are fresh in the customer's mind. Listen and assure them their concern has been heard and will be addressed appropriately. This may be all that is necessary. However, if listening is not enough, don't be afraid to give them a credit for the service visit or offer something else. Losing an angry customer costs far more than the loss of income from a credit you extend for that particular service visit.
When to pursue collections
Despite your best efforts to collect on past-due receivables, you might determine that your last and best chance for getting paid will require collection action. This is a business decision as to whether the time, energy and costs associated are worthwhile. If you cancel service mid-season because of non-payment, be sure to send correspondence to this effect so they understand that you are no longer liable for providing the service and are proceeding with collection action.
If you do not already have a relationship with someone who does your collection work, begin looking for one. Ask other business owners for referrals and begin interviewing collection agencies and attorneys. You want to make sure that if engaged, they will represent your business appropriately. The tone and manner of their collection action will directly influence how your customer perceives your business.
Making a profit in this economy is more challenging. And making a profit does not translate to cash in the bank. Profit realized as cash in the bank is a result of a successful cash flow strategy. Paying vendors on time, making payroll and covering other obligations can only be done when there is cash coming into the business. Improve your receivables process so you can keep working on your business.
For a sample collection process with letters and phone scripts, e-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it and include "Collections" in the subject line.e-mail and include "Collections" in the subject line.
Douglas Freer, CSP, owns Blue Moose Co., Inc. in Cleveland. Contact him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
