Most companies are really good at their craft, providing their products/services to customers with excellence. Fewer companies are as good at selling their products/services, most managing to just get by. Even fewer companies are good at collecting receivables after the sales process is presumably complete. Collecting receivables is really a simple process, contrary to what some may think. I promised in my last blog that I would follow up on this subject, so here it is. The answer is really very simple. Please read on…
One of my favorite movies is A League of Their Own starring Geena Davis, Tom Hanks, and Madonna. It is a fictionalized account of the All-American Girls Professional Baseball League during the World War II. In one scene, a young woman fails to throw to the cutoff from right field, allows the tying run to score, and is then chewed out by Tom Hanks, the grizzled coach. When she tears up, Hanks incredulously asserts, “There’s no crying in baseball!”
When it comes to accounts receivable, the analogy is: “There is no email in collections.” No email? That is your answer to better collections, Mr. B2B CFO? Yes, absolutely. Why? Because difficult conversations are never effectively handled by email. It is my firm belief that email is our way of avoiding difficult conversations. We know we should pick up the phone or pay a personal visit to work things out, but we send an email instead because we want to avoid confrontation at all cost. Email is easy, impersonal, and effectively avoids confrontation, but fails to expedite the receipt of a check, which is the goal.
Here’s how I see the collections, or should I say the non-collections process play out in far too many circumstances. The company makes a sale and sends out an invoice, then waits 30 days hoping to get a check. When that doesn’t happen, the company waits another 15 to 30 days, thinking that maybe the check really is in the mail. Then, a mail or email is sent to the customer to identify the past due amount, but either is so benign that it does not spur action on the part of the customer, or has so much venom that it comes across as rude or threatening. Does this sound at all familiar?
Managing receivables is as simple as picking up the telephone, as low-tech and pedestrian as that may seem. Below is a simple, yet surprisingly effective 5-step methodology for managing your accounts receivable and speeding up collections, mostly based on the intellectual property invented by Alexander Graham Bell in 1876.
- Choose and onboard your customers/clients. Screen your customers via credit checking first before shipping any product or providing services. Let your competition have the deadbeats. For the desirable customers, have an onboarding process to tell the customer/client what your expectations are with respect to payment. Credit terms should be clearly communicated at that time, including terms, follow up, ramifications of late payment, etc. Set the ground rules early during this honeymoon period, and be prepared to follow up immediately when/if the rules are stretched or broken. If this sounds to you like effective dog training or parenting, you are on the right track.
- Accurate and timely invoices. Be sure to prepare invoices timely and correctly, because if you don’t, customers will take advantage of your mistake by not paying or paying late, and feeling they have every justification for doing so.
- Get to know you customer’s staff. Your accounts receivable specialist should make a point to learn about the accounts payable specialist at your customer’s company, in a friendly, non-creepy way. Slowly learn about hobbies, family members, etc and be able to start conversations about those friendly, non-threatening topics. This will help when/if difficulties arise.
- Confirmation of receipt and questions. Wait until the invoice has likely been received by the customer, then have the appropriate person (AR specialist or controller) call. The call should be goodwill building and friendly, as discussed in the bullet point above, but conclude the conversation with two questions – did they get the invoice, and do they have any questions? Make sure that the call is logged as to who was spoken to, time, etc. for the inevitable “we didn’t get the invoice” excuse yet to come (see below). Even QuickBooks has a spot for logging these calls.
- Pre-emptive collections calls. Two or three days before the due date, have the AR specialist or controller call again. Small talk is encouraged, but eventually ask if the check has been cut and/or sent. If they say they didn’t get the invoice or have questions, you can remind them of the date and time four weeks ago when you called and confirmed that the invoice was received and there were no questions. The customer quickly learns here that the standard payment avoidance routines will not work with your company. If a check is still not received, its time to get the sales staff involved (see my last blog).
I have helped clients implement these processes in the past and found them to be amazingly successful in speeding up collections and avoiding bad debts. The resulting improvement in collections turns out to be a mix of metaphors – “there is no crying in collections.”