Operations

Accounts Receivable and Collections Management

Jim Luff
Posted on June 25, 2010

4 Tips for You

1. Timely Invoicing

When invoicing clients for services rendered, it is usually done as a matter of convenience for the client. The sooner the invoice is in the hands of the client, the sooner you will be paid for your work. Invoices can and should be delivered the same business day or the next business day.

Sending invoices by fax or e-mail not only saves on postage but should trigger the number of days to get paid based on agreed upon terms. The best terms for a business are "due upon receipt." In some cases you may need to extend the terms to "Net 30" for large businesses, but the day they receive the invoice is the day the count begins. Every invoice should have the payment terms clearly printed on them so there are no mistakes in the expectation of payment. Timely invoicing is essential for good cash flow.

2. Monthly Statements

Once a month, on a specified day such as the last or the first day of the month, statements should be sent by postal mail, e-mail or fax. Statements should clearly show every open invoice, any payments received since the last statement, and an aging graph showing accounts more than 30, 60, or 90 days old.

This second form of billing protects against the claim, "I never received an invoice." Even if they didn't, they received a statement showing the amount due. Statements should be stamped "Past Due" if payment is overdue. If payment is more than 60 days past due, you use stickers from a local collection agency advising the account will be referred to a collection agency soon. These stickers are free of charge in hopes of gaining your collection business.

3. Payment Terms and Agreements

It is a good practice to have clearly established terms and a course of action for dealing with delinquent accounts. This begins with establishing a written agreement with the client clearly stating when bills become due. This can be the date the invoice is received by the client, the date the invoice is issued, or the date of service rendered. Having a completed and signed credit application with the credit terms specified in writing - including financial penalties that may be invoked such as late fees, interest, and returned check fees - can help you in the collection process. When possible, obtain a "backup credit card" that financially secures the account. This includes a client signed statement agreeing to use the credit card to pay any outstanding balances when the charge becomes more than 90 days past due.

4. Collection Steps

Collection efforts should be made on a specified day of each week. While no one enjoys the task and there is a chance of angering a client, the money must be collected. It is better to have someone who never takes orders from the client to call instead of having an awkward conversation with their normal contact.

Phone calls are the best method as they require a verbal commitment to the question, "When might we expect payment?" At 30 days past due, use a highlighter to draw attention to past due invoices and a Past Due stamp. At 60 days past due, use a sticker indicating the account will go to collections in 30 days. At 90 days, make a last ditch phone call and attempt to set up a payment plan. At 120 days, send the account to a professional collection agency. While you will lose half of the money, it is unlikely you were going to get paid anyway, so some money is better than a total loss and you should at least recover your actual cash costs.  

LCT contributing editor Jim Luff is an operator from Bakersfield, CA who began his career in the industry as a private chauffeur in 1990. In 1993 he joined Limousine Scene as the general manager and later becoming a partner. LCT recognized Jim as an Operator of the Year in 2001.

E-mail any questions to him at Jim@LCTMag.com.

Related Topics: business management, management, tips for success

Jim Luff Contributing Editor
Comments ( 0 )
More Stories
Video

LCT East: Catch the Wave of Success

LCT/NLA Show East takes place November 5-7, 2017 at Harrah's Resort Atlantic City and offers a complete trade show marketplace, networking forum, and educational lineup ideal for limousine and bus operators nationwide and based on the East Coast.