Take back control over your vendor accounts, and get your company’s cash flow flowing with these practical tips. But first, let’s address the problem.

The Problem with Cash Flow

Why is it so hard for business owners to manage overdue accounts? 

The problem is so bad that many businesses are overpaying to the tune of more than $2,000 a month. That doesn’t even account for payments held hostage by clients refusing to pay for shoddy or incomplete services. 

Cash flow leaks and inefficiencies cost businesses more money than they even realize. If you consider the hidden costs, along with the real costs, of overdue receivables, you’d be surprised. 

These are costs such as:

• The opportunity cost of wasted time and energy in the management of the receivable
• Lost goodwill between the client and your company could result in negative press
• Interest expenses on the line of credit used to fund operations while awaiting payment
• Wage cost of bookkeeper time to send statements, reminders, and revised invoices
• Wage cost of CFO and Auditors that annually analyze collectability of accounts 

This list could go on, but you likely get the point by now. So how do we change the trend?

Let’s look at 6 key steps that will help you take back control over overdue receivables and get that cash flowing. 

Start with Deposits

To change the way you currently operate, you need to change the way you think about deposits. So many businesses feel restricted in this area, believing they may lose business if they ask for a deposit upfront This is simply not true. The real problem lies in the asking. It is more likely the case that businesses are not used to asking for a 10% deposit before the start of a project, rather than that they always get turned down for asking.

In reality, it is overcoming the fear of asking that will get a win with this strategy. This deposit strategy would work in virtually any service-based account you could think of, but it requires the full backing of management and the support of a sales team that is confident enough to ask.

Explain Terms

Too often sales teams are so focused on the close since that’s exactly what they’re compensated for, that they lose sight of the details. Explaining the payment terms and expectations to the customer upfront can help avoid misunderstandings in the future, as well as help weed out any potential financial issues in the future.

It’s not just about reading a bunch of policy jargon either, no, it’s about getting to know the client well enough to ask about the uncomfortable things.

Questions like:

• Are they able to pay?
• Who is actually in charge of approving payment?
• Do they understand work will not proceed unless terms are met?

Even though it may be uncomfortable, your sales force is the key player in this strategy since they are closer to the customer and can help reinforce terms along the way.

Focus on Quality

Though it may seem this is a fundamental business mantra anyways, this focus on quality has to do with efficiency. The quicker the job is completed, the sooner payment can be made. However, if that job is done quickly, but not to the satisfaction of the client, time spent on re-work is like working for free.

If reworks are necessary, treat them like an emergency and clear them up first. If you wait too long, they will end up being another stale AR note you’ll have to answer for at the end of the year. Focus on quality and treat reworks like an emergency and you’ll be well on your way to steady cash flow.

Review AR Weekly

OK, we know this sounds like overkill, but you’d be surprised how a dedicated employee will zero in on what is needed and garner you the response you need to get money flowing.

Trying to assign a task like collections to an already overworked employee is a recipe for disaster. On the contrary, giving such a significant responsibility to one person, whose sole job is to create relationships with the companies behind your AR hold-up, can be just the grease you need for the wheels to begin turning. 

Leverage Early Payment Terms

There is a chance many companies won’t even need this step, but the businesses that skewed better for handling overdue AR accounts offered discounts for customers paying early.

The benefits of this strategy are a win-win for everybody involved. The client would experience a discounted cost, while the company would experience an infusion of cash.

Consider Alternate Payment Methods

At the end of the day, AR issues are nuisances, but really, you just want your money for services rendered. Offering to convert the client’s debt into a trade note, or formalized loan could alleviate any cash flow issues the client may be experiencing while at the same time improving your cash flow as well.

Instead of constantly asking for payment, you can now reduce the strain on both sides.  Offering monthly, agreed-upon payments towards the loan helps the client, and collecting a small interest fee helps you cover any costs associated with extending the loan.

Change the Mindset, Change the Cash Flow

It is not enough to care about receivable accounts. It’s not even enough to try and implement strategies. At the end of the day, the only thing that matters is that everyone in the company is on the same page with the rules of engagement.

If the company culture embraces an understanding of the implication of a properly managed accounts receivable system, you will begin to see real change.

Running a company relies on treating others with respect, but also respecting your own business in the process. Keeping that mindset and implementing these strategies can have you well on your way to steady cash flows.

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