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Client Alert - Winter 2002

Take control of runaway receivables

When the economy slows down, your business’s profitability and its survival depends more than ever on adequate cash flow. Here are some tips for increasing your business’s cash flow by improving your accounts receivable collection system.

Do a background check on new customers. Check financial soundness and credit history thoroughly before extending large amounts of credit to a new customer. Don’t rely on credit reports alone. Make a few quick calls to other businesses that trade with the prospective customer.

Bill customers promptly. Once you have delivered your goods or services, you must make it as easy as possible for the customer to pay you quickly. Send the invoices shortly after the sale (perhaps biweekly instead of monthly). Use informative invoices so the customer can quickly determine whether the order was authorized and received. Use your sales staff to assist in the collection process. By tying commissions to sales collected instead of sales made, you give an incentive to sell to paying customers. A more direct method is to have your sales staff check with the customer shortly after invoicing to ensure that the customer has received the order and that all is well with the payment schedule.

Work with delinquent customers. If a payment is overdue, be flexible in your collection approach. If necessary, break a $500 invoice into five monthly payments of $100 plus a reasonable interest fee. Small payments are better than no payments.


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