Pay up!

Features - Finance

Struggling with aging invoices and unresponsive clients? Here’s how owners keep collections down and cash flow up.

Subscribe
March 2, 2018
Kristen Hampshire
© WildPixel | iStockphoto

Having trouble getting paid? When your accounts receivable is dragging, you’ll feel the pain with low cash flow or worse: trouble paying your own expenses like payroll or vendors. Timely collections are critical for operating a healthy business. Here are seven strategies to help you get paid faster.

1. Provide payment options.

Make paying your invoices as convenient as possible. Today, that means offering an online payment option and accepting credit cards. “People need an easy way to pay,” says Missy Fromme, co-owner of Lawn Cure in Sellersburg, Indiana.

Country Club Lawn and Tree Specialists in South Roxana, Illinois, offers a $5 or $10 credit toward clients’ accounts when they set up an online account or select auto pay. “For new customers, we make sure we get their email addresses and we ask if they want to set up credit card billing or auto-pay,” says Mark Black, owner.

At ValleyGreen in Sartell, Minnesota, 60 percent of clients pay by credit card. “We also take credit cards over the phone or customers can pay by credit card online through our website,” says Michael Hornung, president.

2. Push prepays.

About 40 percent of ValleyGreen customers prepay for services because it’s convenient. Plus, the company offers a modest incentive.

Jim Huston of J.R. Huston Consulting knows of an irrigation company that runs its contract year from Oct. 1 to the following Sept. 30. “They want to get the winterization and spring turn-on during that first six months of the client’s billing cycle, so they pre-bill and get paid almost $1 million in prepaid billing,” he says. “This provides the ‘line of credit’ the business needs for winter, and customers who prepay get a 5 percent discount.”

3. Bill early and often.

Don’t wait to perform the service before you bill if a client is on a seasonal or annual contract. Huston advises contractors to invoice customers 15 days or up to one month ahead of the service schedule. “If you wait until the end of the month after you’ve performed the service to bill, you’re crazy!” he says. “You have to do that if you are billing on a time-and-materials basis, but if clients are on a contract, bill at the beginning of the month.”

4. Adopt software and put it to work.

Fromme says that using software has helped the business stay on top of invoicing and collections. “You can turn your collections over through the system, and we use the system to send weekly invoices,” she says.

5. incentivize your billing department.

At most landscape companies, billing and collections fall on one person in the office. Incentivize this administrator to collect receivables before a certain deadline, like 30 days or 60 days. “As long as our collections are under 16 percent of accounts receivables, she gets a bonus,” Black says, relating that the percentage relates to accounts that are over 60 days.

You’d pay a collection agency a percentage of what is collected, so why not offer a similar reward to your office person for collecting on those old invoices, Huston says.

6. Find a factor (and cover the cost).

If you work with a factor, that company basically takes over the billing and pays you a percentage of the invoice, such as 97 percent of the billing rate. “The factor then chases the money down from the client,” Huston says. Some factors advertise that if they can’t collect, they’ll eat cost of the bill. Huston knows of a tree contractor that has used a factor for years to handle all of his accounts receivables. “He added 3 percent to the bill, and that worked out well,” Huston says.

7. Call in the collectors.

While collections is the last-ditch effort to get paid, at least you’ll get paid something. Black sends invoices that are 120 days or more overdue to collections. “An outside agency can take up to 50 percent of the invoice, but that’s better than getting 0,” he says.

Often, the mere mention of sending a bill to collections is enough to get a client to pay up. Don’t hesitate to mention your process to customers. “One company’s office manager would call up clients and say, ‘Listen, if we don’t get this paid, we’ll have to send you to collections,’” Huston says. (This call came after several attempts to collect.) “Just that threat was enough to get people to tighten up and pay.”