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Collecting Money: The Reality
By Howard LewinterEvery business has the same goal -- to make money -- yet many businesses are in a vulnerable position as they are unsure how to generate payments on overdue accounts. Collecting these funds is crucial to fueling the daily operations of the entire company. Often, asking for money due for services rendered is a difficult task. To make it less stressful, chief executives, presidents and business owners need to have an active plan in place with specific steps outlining the process for collecting on behalf of the company, be it routine monthly billings or more serious past due accounts.People, in general, do not like to ask for money. Somehow it seems too personal and too invasive to discuss why someone hasn't sent money rightfully owed. Asking for money from long-time clients can be even more difficult because, in a sense, they have become our friend. We don't want to insult someone who is considered a friend, let alone feel that we are potentially jeopardizing a client relationship. Collecting money is simply part of doing business. A well thought out protocol regarding accounts receivables will take the uneasiness away, set a standard by which money is collected and maintain a more even balance to the company's receivables. What should you consider before implementing a collection plan within your own organization? Here are a few points to keep in mind: Know your clients. When initially contracting with a client, discuss payment for services upfront so that both sides know and understand the payment expectations. Get to know your contact person in the client's accounts payable department, find out billing cycle dates and how your billing will be processed. Keep informed about your client's current circumstances and future plans as well.Get organized. Develop a step-by-step written plan of how you want your company to conduct collections, beginning with regular monthly billing statements and missed bills all the way through to problem accounts. Meet regularly with accounts receivable, and be sure that the billing department always has accurate, up-to-date records of what is due, overdue and paid. Think carefully about credit. Examine the credit-worthiness of each client company. Some companies present virtually no risk at all because of their financial strength. Other financially weak companies will require strict credit limits. It is important that you understand the difference between the two and respond accordingly. Ask for the money. Set a policy identifying when collections for missed payments should begin, keeping in mind that statistics generally show it is better to start sooner versus later. Determine what action needs to be taken and take it. It can be beneficial to designate a specific person who is responsible for collecting the money. There is an "art" to professionally collecting money, and providing this individual with on-going proper training can be an extremely worthwhile investment.The personal touch. Often the best first step in collecting on an overdue bill is to make a personal phone call to appropriate contacts at the client's location. Frequently many unpaid bill issues can be easily and quickly resolved. Another idea is include a short, professional handwritten note when the second notice on an overdue bill is sent out. When such efforts have not paid off, continue to pursue the unpaid bill by contacting the department head or if there is a chief financial officer, call that person. Finally, call the company's CEO or owner and discuss the situation directly. Throughout the conversation be sure to keep an open mind toward resolution, and if a compromise is necessary, do so in a manner satisfactory to both parties, but with a definite timeframe for payment.Follow up. This is one of the best techniques when attempting to secure payment. Be persistent in a business-like way and don't give up. Follow-up isn't just about collecting payment in full. When all the money is collected, call or send a note thanking the client for his or her cooperation.Other options. When all good faith attempts have failed to collect the money, consider such alternatives as seeking legal counsel, small claims court or collection agencies. Take the time to explore each option thoroughly to determine which potentially is the best solution. Keep in mind that each involves additional time, money and yes, stress and aggravation. Unfortunately, not all debts will ever be collected. At some point, the decision may be to simply write off unpaid debt. Remember, once they buy the goods or services from you, it's not just that they owe you money; it's more like they are keeping your money in their account. Your business requires cash flow in order for you to meet your payroll and all of your other financial obligations, which is why paying careful attention to collections is so important. Even a successful business not riding herd on the collection department and not collecting on outstanding invoices is vulnerable and can be put out of business. Take the time today to implement a specific collections process for your company, and enjoy the benefits of reduced stress and increased revenues that are sure to result from your plan.Howard Lewinter is a business management specialist who has guided, focused and advised many hundreds of CEOs, presidents and business owners to make significant, lasting improvements that ultimately ensure their companies thrive. He can be reached at (888) 738-1855.This article is new this week in The Business Journal's small business how-to section. To see what else is new, click here or click on the "how-to" tab at the top of The Daily Business Journal Online home page."