Unfortunately, you are looking at self preservation at this point and a line needs to be drawn. So, your first step will be putting your client’s account on hold until payment is received. You may want to offer to allow a prepaid account for future services and invoices so you know current services are covered while they are paying off their past invoices.

When you make this difficult call to request payment, remember to keep it professional and polite but firm. You may get the “we didn’t receive your invoice” excuse, which can be a legitimate reason for a missed payment in some cases. This one is easy enough to resolve; email them the invoice while still on the phone and ask for confirmation of receipt. If they still don’t receive it, you’ll need to print the invoice and send by registered mail. Document the call, the email and registered mail.

You’ve played nice and kept it professional, you’ve given your client a reprieve and offered an easy out but they still haven’t sent payment as promised. Now you will need to make another call and speak directly to the owner of the business to let them know the check never arrived and suggest you will stop by personally to pick up the payment. If your client happens to be out of State, send a courier to pick it up.

Maybe your client is really having a tough time and tells you they just can’t make the payment they originally promised. It’s understandable, you don’t want to be unreasonable, so work with them. Offer to accept a smaller payment (something is better than nothing!), then set up a more attainable payment plan. Again, document every conversation and communication.

So now you’ve gone through these steps and you still haven’t received a payment. It’s time to step up your game a bit, still keeping in mind it’s best to be professional no matter how annoyed you are at this point. This is when you’ll need to start calling your client every day, at varying times, and visiting them on a regular basis, making sure to document every interaction. Usually clients who have been giving you a hard time will find this a bit disconcerting and because you’re not a nameless/faceless collection agency, you’re not as easy to ignore. As a result it will usually result in receipt of payment.

Next week we’ll look into what steps need to follow these efforts if you still haven’t received payment.

_{Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money and grow their income since 2001. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida with a focus on providing outstanding service, tax savings and financial growth to clients in the Tampa Bay area, Nationwide and around the world. Visit our website www.FredrickJames.com or call 727-230-0716 for more information.}

Very few business owners start their company with the goal of becoming collection agents, so being put in that position can lead to avoidance. You have a personal relationship with your clients and it can become an emotional issue for many small business owners—who wants to add stress to people you know are already struggling? So let’s take the emotional baggage out of the equation by setting up some simple guidelines that communicate your expectations and provide more up to date information for your clients that will help them better budget their payments so you get to avoid being “the bad guy”.

No doubt about it, invoicing is tedious. But with a little tweaking, the process can be improved to make communication between you and your clients/customers more frequent and reduce accounts receivable aging.

Avoidance and lack of communication leads to misinformed or uninformed (and eventually very frustrated) clients, this is often the first mistake that starts you on the road to the A/R blues. Unappealing as it may seem, staying on top of your invoicing improves your cash flow, helps you identify problem clients more quickly, reduces invoice disputes since clients still have the transactions fresh in their heads, and improves client relations because it helps your customers manage their own cash flow.

Your new mantra: Invoice clients/customers promptly and more often!

So where do we begin? As with most things, having the right tools for the job can save you time, frustration and money. The invoicing process can be drastically simplified with commonly used accounting software packages like QuickBooks which will automate the invoicing process, producing professional looking invoices that can be mailed or e-mailed to your clients. The power behind most invoicing systems is that you can enter time, products and reimbursable expenses into the program’s customer center during work hours and invoice on a daily basis if needed. Yes, these systems can take some time to set up and often the use of a consultant to guide you through the installation process, however, the upfront investment of time and money significantly reduces the time and embarrassing mistakes that can ultimately show up on your invoices down the road.

How often you invoice is up to you, but ideally you’ll want to shoot for invoicing on a weekly basis or a biweekly basis. Invoicing on a daily basis any finished work is a great way to stay on top of your invoicing workload too. This invoicing schedule might seem somewhat overkill, and you may be worried about your client’s reaction to the change but think of it more like a marketing campaign than billing. “The squeaky wheel gets the grease” and the more often you correspond with the customers, the more likely your invoice will fall at the top of their list for prompt payment.

Okay, so you’ve got the “why” and you’re ready to get your accounting software setup, now let’s outline the steps to implement your plan of action:

1. Invoice your client and include that the amount was either deducted from their prepaid account or that the invoiced amount will be deducted from their payment account on file (Credit Card, ACH) within 3 business days of the invoice date. Always, always include an invitation to call you if they have any questions.
2. Prepaid accounts need to be notified of their balance and any additional payments needed to keep their account current in order for work to continue. If this prepaid account runs out, then work stops until additional prepayment funds are received.
3. The accounts are then paid within the 3 business days of the invoice date and either accepted or denied by the credit card merchant or bank.
4. Any denied accounts are promptly followed up on and any work on that account is stopped until the invoice payment is satisfied.
5. Clients who do not follow up on denied accounts are placed into the collection process (this will come later in our series).

This process is service-based but can be easily modified for retail business: Payment must be received in full prior to delivery. Better yet, never order product for the customer until the client has at least paid your costs on that product by requiring a non-refundable deposit.

Don’t allow yourself to be at the mercy of your clients; take your power back by implementing these simple and extremely effective processes! It’s not rocket science, but there are still companies that will not subscribe to these simple rules who will find themselves singin’ the A/R Blues and, sooner or later, out of business.

Be proactive with your client communication and be honest about your expectations; you’ll have happier clients, enjoy your business more and have the satisfaction of seeing it thrive.

_{Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money and grow their income since 2001. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida with a focus on providing outstanding service, tax savings and financial growth to clients in the Tampa Bay area,  Nationwide and around the world. Visit our website www.FredrickJames.com or call 727-230-0716 for more information.}

With the economy in disarray, many businesses are faced with this scenario that not only causes cash flow to slow to an alarming trickle; it actually adds the additional cost of trying to collect from slow or non-paying clients. Most business owners don’t realize this is actually an added expense but once you take into account the time invested in trying to collect on services/products rendered that could be used to generate new revenue, the added systems needed to check clients’ credit worthiness, the time needed to monitor payment collections, send delinquent account collection notices and, in extreme circumstances, make phone calls and visit non-paying clients, it is easy to see how quickly the additional expense adds up.

Now you find yourself singing the Accounts Receivable Blues, “Everyone wants what I’ve got to offer, but no one wants to pay until I beg for it.” You don’t have to get stuck singing that song though; there IS a way to avoid getting the AR Blues if you just change your tune to “Pay me at the time of purchase or secure your account.”

Over the next few weeks we will explore several ways to stop the Accounts Receivable Blues, starting with one of the most effective changes a business owner will make to start putting cash back into the bank—having a stated A/R policy.

Avoiding the A/R Blues, Part I

The first change business owners may want to explore is implementing an A/R policy. Over the next year or two, it is expected a lot of companies will go out of business due to cash-flow problems from slow A/R payment or nonpayment. Our goal is to help you NOT become one of those statistics.

Your clients aren’t avoiding paying you out of spite or because they want to. The reason that many business clients are not paying their invoices on time has to do with the banks slashing and/or cancelling their credit lines. The loss of sufficient credit forces many businesses into a cash-flow crunch and the inability to make payments in a timely manner.

Unfortunately, yes, we are all in this together and one business’s cash-flow problem can quickly turn into another company’s problem. If a business can’t pay a vendor, then the vendor can’t pay its bills either. In other words, if not treated, a simple A/R flu can quickly turn into a pandemic that will ravage the entire economy.

So how do you avoid getting caught up in another business owner’s cash crisis? You need to tighten your credit policies just like the banks and stop issuing unsecured credit to your clients who have not proved credit worthiness. This will limit your exposure to slow or non-paying customers.

Two possible options to help move you in this direction would be; no more unsecured credit accounts and the establishment of prepaid accounts. You may also want to require that your client’s account must be secured with a credit card, bank ACH agreement or cash.

One of the most common questions I get when suggesting this course of action is, “What if my client leaves because I changed the policy?” That may happen, but in my experience, it is usually the problematic client who will leave as a result of your new A/R policy—the same client who was costing you money, slowing your cash flow and jeopardizing your business in the first place. Your good paying clients generally won’t have any issue with your new policies, especially if you take the time to explain your reasons for taking action. After all, you help their business succeed so they don’t want to see you go under either!

Collecting on accounts that are delinquent is a waste of company time and is very costly. For a majority of my clients collections means that the CEO or President has to make collection phone calls, oversee collection letters, visit clients for collections and file collection claims against slow or non paying clients. Not only does the company lose part of this income as uncollectable, but the company loses its most valuable asset, its leader’s time that could have been used to create more income for the company.

So be proactive now to stop the pandemic of nonpaying clients, avoid the A/R Blues and, instead, invest you’re valuable time into building your business & producing revenue. Then take a moment to rest, regroup and enjoy the fact that your business will prevail!

Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money and grow their income since 2001. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida with a focus on providing outstanding service, tax savings and financial growth to clients in the Tampa Bay area,  Nationwide and around the world. Visit our website www.FredrickJames.com or call 727-230-0716 for more information.