Collecting cash shouldn’t be an issue if you integrate automation with the billing process as you will only need to deal with the minority of cases. For most professional businesses, the automation process is a work in progress, or they haven’t thought about how to collect from those troublesome clients. For these businesses, how you collect payment is critical to survival.
Communicating the businesses credit terms and expectations clearly and as early as possibly will ensure there is no confusion and sets engagement expectations upfront. Likewise, quantifying fee expectations in advance and communicating variations as they’re known will avoid confrontation upon billing.
Change your clients and employee’s perception of overdue. Instead of your traditional 30, 90 and 120+ day methodology, change this to a “Due Now” and “Overdue”. This simple perception change alone will bring significate uplift in collections and will also identify those trouble collections early on before they turn bad. Where possible, automate/systematically follow up on debts and communicate this at the start or include in the engagement.
In summary, the faster you bill and communicate, the easier it is to collect an aging WIP and Debtor amount owed. Don’t forget to be professional when collecting debts, non-confrontational reminders will get the best results for the majority while maintaining reputation i.e. the friendly reminder.
Good collection policies will include a number of considerations. You need to develop a clear collection policy to get the desired results and state this in your engagement letter or cost agreement. For those who don’t know where to start, at the very least they should include:
- A grace period;
- Penalties (if any) post this grace period;
- When collection reminder notices are sent and how;
- When to send and when to call;
- Expected actions that will be taken and when;
- When are accounts placed with outside collection firms; and
- When you will write off the account as a bad debt.
You, as a businesses owner, need to be all in. What I mean by this is consistency as well as a commitment to the process. Consider when sending invoices and when best to fit within the clients best timing and only discount where risks are higher.
Consider who is the person responsible for the work and if their the best fit for invoice responsibility. Set KPIs around lockup and collections to drive the desired result.
For those professionals who don’t want to follow suit, the KPIs should be linked to the sometimes-forgotten relationship. Accounts pay wages and bonuses, if you don’t bill and collect then the individual and team will be penalised in some way.
If you have found this article useful and would like to know more, reach out to FWO today.