Solomon & Hoover CPAs, PLLC Blog - Financial Guidance to Help Your Business Succeed

Solomon & Hoover CPAs, PLLC Blog

Financial Guidance to Help Your Business Succeed

Collect like you mean it

Posted by admin On July 10th

BMSsu13_2Collect like you mean it
Strategies for getting paid in full and on time

Nothing puts a crimp in a business’s cash flow like slow- (and no-) paying customers. You say you expect your customers to pay on time and in full. But you may be giving off mixed signals if your billing and collection policies aren’t clear and consistent and you don’t seriously pursue deadbeat customers.

What’s your excuse?

The quality of your products or services, and the efficiency of order fulfillment and distribution processes, can significantly impact your ability to collect. You give customers an excuse not to pay when an order arrives damaged, late or not at all, or bills are incorrect.

Sending invoices out late can also thwart your collection efforts. Make sure you set your payment schedules according to industry norms (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest clients have their own payment schedules, be sure to set them up in your collection system.

If you haven’t already done so, implement an automated collection system that generates invoices when work is complete, flags problem accounts and generates financial reports. Electronic invoicing that enables customers to pay online can help boost collection rates and reduce work for your staff.

Tough customers

Despite your best efforts, you’re likely to encounter slow-paying customers. It may make sense to give good customers that are experiencing temporary cash-flow problems some slack by, for example, setting up an installment payment plan.

But you need to assume a strict stance with repeat offenders and those you suspect aren’t operating in good faith. Start by assessing fees or finance charges for past-due amounts. If customers are extremely delinquent, put their accounts on credit hold or adjust their payment terms to cash on delivery (COD). If a customer is disputing part of a bill, ask it to pay the portion it’s not disputing while you investigate its claim.

Research has shown that the likelihood of collecting an invoice drops from more than 90% after 30 days to just 74% after 90 days. So your receivables department should promptly follow up on late notices, and the manager who works with the customer should talk with his or her contact at the company or the company’s owner.

If your in-house efforts don’t work, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.

Prevention is best

To reduce the chances that you’ll have to take such drastic measures in the future, screen potential customers rigorously. Review their payment histories and credit scores and verify their bank account information.

For higher-risk customers, require full payment upon delivery for their first few orders. Or request an up-front deposit for each order.

Writing it off

Not all is lost when a customer fails to pay. You generally can write off uncollectible outstanding debts as ordinary business expenses, limited to the uncollected, outstanding debt that you’ve previously included in your gross income. Be sure to document customers’ promises to pay and your collection efforts, as well as why you’ve concluded that the debt is worthless. If you don’t, your deduction could be denied. •

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