Getting paid in a down economy can be quite challenging, particularly for those businesses that have to extend credit to their customers.
Maybe you, for instance?
Even your best customers may find it difficult now to pay up in a timely manner, which means it's even more important for you to stay on top of your accounts receivable so you don't end up with a cash-flow crunch.
"It's critical at these times to get a handle on accounts receivable," says Sean P. Melvin, an attorney, author and associate professor of business law at Elizabethtown College, in Pennsylvania. "It can really start to stack up quick."
In fact, in a survey released in April by American Express OPEN, one in four (24 percent) entrepreneurs reported that their accounts receivable are too high, nearly double those in fall 2007 (13 percent).
"People tend to let their customers out a little too far," explains Melvin. "If somebody owes you money, it's very likely they owe other people as well, and those people may be in a position to use more influence then you have to collect."
So it pays to stay on top of unpaid invoices to help ensure a steady cash flow during these down times. And the best way to do that is to have some system in place to monitor receivables, say experts.
This has proved invaluable for Maureen Borzacchiello, president of Creative Display Solutions Inc., a trade show display company in Garden City. The company runs weekly cash flow and accounts receivable reports to help avoid any surprises.
In 2006, when the company was experiencing rapid growth, Borzacchiello said, she didn't have a good enough handle on accounts receivable and ended up with a cash-flow crunch. By instituting several changes, including running weekly reports, she was able to turn that around quickly and hasn't experienced problems since.
The bottom line is, you have to find a system that works for you and stick to it, says Glenn Romanelli of Lighthaus Design Inc., a full-service marketing agency in Smithtown. This includes knowing how much credit you can extend to customers and how much cash you need upfront to survive. He uses QuickBooks Pro to help monitor outstanding invoices so he can then follow up with customers.
Follow-up is important, notes John Salek, author of "Accounts Receivable Management Best Practices" (John Wiley & Sons; $64) and vice president of business services for Genpact in Danbury, Conn., a finance and accounting services firm.
In fact, he suggests contacting your major accounts a week to 10 days before the invoice comes due to ensure they got it and to deal with any outstanding issues. For smaller accounts you can send an automated collection letter or e-mail, he says.
"If a dispute arises during any collection call, handle and resolve it promptly," he advises, adding that it pays to have a dedicated collections person to stay on top of receivables.
Empower that person to be able to resolve issues promptly, he notes. If a customer has a problem paying the full amount, then agree upon a payment plan that favors frequent payments in the quickest time frame possible, suggests Salek.
"You want as much as you can as frequently as you can," he notes.
Finally, if you're not getting paid despite repeated efforts, then you need to ramp up collection efforts. This may mean cutting off shipment or pursuing legal action if the amount warrants it. If you wait too long you can risk never getting paid, particularly if the client files for bankruptcy or shuts down.
"If there are competing entities looking to collect from the same person, you want to be ahead of the game," says attorney Peter H. Levy in Jericho, who is also president of the Nassau County Bar Association. "A good customer yesterday may not be a good customer tomorrow."
Show Us the Money
-Make sure all invoices have the due date clearly visible.
-If you don't already, consider accepting credit cards. You'll have to pay a processing fee, but at least you'll get paid upfront.
-Do due diligence on a new client before extending credit. Get as much ID as possible. Keep copies of checks so you know where the money is coming from in case you have to pursue collections.