As promised in Part 1, the series continues with an in-depth look at each of the 15 Things You Can Do To Get Paid Faster. In this post, we’ll look at the first two items on the list.
1) Make a commitment
You didn’t get into business to do drudgery like manage your accounts receivable. You want to do the fun, cool things and watch the checks roll in. But the sad fact is that a lot of your customers are not going to send payment when they’re supposed to. You have to give them a reason, and often that reason is you’re on top of things and they know it. This really is a case of the squeaky wheel getting the grease. Or, more appropriately, the squeaky palm getting greased.
Once you provide your service or ship your product the revenue is now your money, and you’re just letting the customer hold it for a little while. Every day they are late, or heaven forbid, they don’t pay at all, takes money out of your pocket.
Think of it this way, if your company has a net income before tax of 10% of sales, just 5% of accounts receivable becoming uncollectible cuts your profit in half. Effective management of your A/R not only gets the money into your checkbook faster, but cuts down on the number of accounts that turn into bad debt.
If there is one common theme among companies I see with collection problems it’s that the owner didn’t make a commitment up front to manage A/R and got into cash flow trouble because of it. Better to avoid trouble in advance then try to extricate yourself later.
2) Provide value in the relationship
If you have accounts receivable, you probably have accounts payable as well. Think about the vendors you always pay on time, even if you have to sacrifice something else. Then think about the vendors you put aside for another day. What’s different about them?
The vendors you pay on time, every time, are the ones you can’t do without. It’s that key supplier without whose product you don’t have sales. It’s the utility or telephone company – if they cut you off you’re out of business.
Or what about your most important “supplier” of all: your employees? Try not paying them on time and see what happens.
A discussion on methods of providing value to customers is the subject for another day. For now, just know that being that critical supplier to your customers makes your job of collecting accounts receivable so much easier.