Accounts receivable collections are critical for cash flow management. Many business owners consider accounts receivable as cash on hand. This method of thinking can sink a business. Accounts receivable represents revenues earned but not collected and should never be considered as cash in the bank. The collections process is essential to maintaining incoming cash flows.
Making collection phone calls to past due customers is an unpleasant task most employees choose to ignore. However, the consequences of ignoring past due invoices can be catastrophic. I have worked with several clients that were on the brink of closing their doors; not because they didn’t have work, but because they ignored or were behind with cash collection procedures. Maintaining healthy cash flows requires weekly and consistent collection phone calls on past and nearing due invoices. Weekly phone calls might seem a little over the top, but a gentle reminder every week will grease the wheels for faster payment, even from the most reluctant customers. If you are the type of person who absolutely hates making collection calls, always remember, you earned that money and the customer agreed to pay. Never feel reluctant to ask for money that is rightfully yours.
When making the initial phone call, start the conversation with a polite question as to payment status, rather than a direct accusatory tone demanding payment. Customers are generally much more responsive and helpful to a polite conversation. Remember, most of the time the person you’re speaking with is not the employee responsible for authorizing payment, they only cut the check. If you are nice to the accountant, they will generally try to push for a faster payment approval. However, if customers continue to stall on second and third phone calls, a more direct and authoritative stance should be taken.
Documenting the details of the conversation is just as important as making the phone call itself. The easiest and most effective way to keep track of accounts receivable balances is to download the A/R aging schedule into Excel. QuickBooks is especially user friendly when it comes to downloading these reports. Format the log so that you can add notes at the end of each customer’s total balance. Be sure to keep track of the day you called, the person you spoke with, and notes from the conversation. With each conversation, make sure to ask for a payment date and amount. If the customer needs to call you back, be sure to establish a day and time for a follow up conversation. Establishing a follow up date and time will help prevent customers from ignoring your request. If these procedures are followed, your business will have the basis for consistent and dependable weekly cash collections, providing cash when you need it most.Written by: Jake Cavanagh TGG Accounting