The current economic struggle is something many Nevadans are not accustomed to, and its impact extends to all aspects of business. When the bottom line is especially low, it is imperative that a company continues collecting that which it is owed.
American Express recently released a survey that correlated an aggressive approach to collecting accounts receivable with a company’s ability to maintain growth and remain competitive. The survey highlighted a number of factors: more entrepreneurs are experiencing cash flow issues than there were one year prior (56 percent vs. 46 percent); one in four entrepreneurs report their accounts receivable are too high; their solutions to improve cash flow show that 26 percent are most likely to become more aggressive in collecting accounts receivable, while 22 percent will raise prices, 13 percent will offer discounts for early payment and 10 percent will look for special payment terms or accept a credit card to increase cash flow.
When in Pursuit of Accounts Receivable
There are a few things to keep in mind when pursuing accounts receivable. Above all, your business connections are vital and it is important to uphold respect and courtesy for your clients. They will remember the times when you were flexible and willing to work with them and, most importantly, they will remember the times when you were not. When it comes to new clients, screening credit-worthiness by asking for references is more important now than ever before.
You may also want to consider changing your billing processes. The more options you offer, the increased likelihood of payment. By e-billing and accepting credit cards, you are making it easier on the client who may, in turn, make it easier on you. The logic is if the credit card charge goes through, it is on the credit card company to collect – no longer the business owner. In fact, many companies have helped themselves and their clients by revisiting the basics of timely payment incentives, such as offering nominal discounts in return for early payment.
It is also worth noting that timing is everything, but the “timing” has evolved. A year ago, it was advisable to hire a collections agency if your receivables were beyond six months to a year. Now, 90 to 180 days is the target for hiring a collections agency.
Analyze the long-term impact. In some cases, it may benefit you to write off a small amount of debt rather than risking an adversarial relationship with your client. You determine this by retrospectively analyzing the relationship with that client. Remember the value of the personal connection.
The Type of Economy Matters
Collecting in a down economy is different than in a strong economy because in a down economy, all issues are multiplied and business owners truly need to be more conscientious in looking at the cost benefit analysis. In some cases, this may mean waiting to get paid versus potentially losing a client.
A common mistake made by business owners is they chance losing a client, which in a slightly different economy would be one of your best clients, by being overly aggressive in collections. However, by not being aggressive enough, you could end up going out of business. There has to be a balance between those two extremes.
As human nature dictates, it is more difficult to say no to someone when they are on the phone with you than through an email. For example, say, “We are looking at our receivables and see that this invoice is 180 days old. When will you drop off a payment?” Do not ask “if,” ask “when.” If you are the sales rep following up, try “My boss is really on me about this invoice. When can we expect payment on this?”
If you do opt to enroll the services of a collections agency, do your homework. Research complaints that have been filed against the agency through the licensing department and Better Business Bureau. Also, look at their experience: How long have they been doing collections in Nevada? Are they licensed? Collections agencies have different areas of specialization, including medical, credit card, automobile and homeowner’s association collections. Determine the best fit for your business and find an agency that will work in accordance with your needs. Do you want more of a relaxed or aggressive collections agency contacting your clients? Also make it a point to discuss upfront how the agency bills, including what percentage of their collections will they be keeping and how they will be paid.
Business owners need to be more upfront in tough times with clients about their expectations so they understand that while a year ago, your firm might have granted 180 day payment terms, this year, it is 90 days. One last piece of advice: Do not be afraid to settle. Be open to working out an arrangement with your clients. When you are trying to squeeze water from a rock, something is better than nothing.