Aggressive Accountant Will Smooth Collections Process
Executive Roundtable is a weekly column by TEC International, an organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help each other solve problems in a round-table session. The following question and answer summarize a discussion at a recent TEC meeting in Southern California.
Question: Earlier this year, we experienced some severe cash flow problems. While checking for possible causes, I discovered my accounts-receivable manager had allowed dozens of our customers--including some of our largest accounts--to fall way behind on their accounts payable. It seems he is great with numbers but terrible on the phone. How can I get caught up quickly, and what can I do to make sure this doesn’t happen in the future?
Answer: The short-term solution, says Abe “WalkingBear” Sanchez, president of A/R Management Group Inc., is to put an aggressive go-getter in the collections position. Long term, however, you need to look at installing a more efficient and effective accounts receivable system.
“If you want something done well, you have to do it in a way that you can monitor and measure it, and that includes the accounts-receivable function,” he says. “In the old days, that meant keeping separate reports for each customer on note cards. These days you can invest a few hundred dollars in a good contact management software program, and tracking delinquent ARs becomes a snap. The key is developing the discipline to use the system on a daily basis.”
It starts with getting the right person for the job. According to Sanchez, most companies hire soft-spoken accountant types to handle collections. Unfortunately, people who gravitate toward accounting positions tend to be introverts who prefer working with numbers rather than people. To jump-start your collections process, hire an outgoing person who enjoys interacting with others and talking on the phone. Equally important, find someone who doesn’t shy away from conflict and thrives on closing the “sale.”
Once you have the right person on board, use the following steps to collect on delinquent accounts:
Use a daily accounts-receivable contact report. Have your accounts-receivable person give you a written daily report that tracks four critical areas: whom he or she called each day, the outcome of each conversation, when you can expect payment from each customer and whether customers have paid when they said they would. Review this report on a daily basis until you get caught up. Then review it on a weekly or monthly basis, as needed.
Start the follow-up process early. Contact problem accounts within three to five days of their becoming overdue. Waiting 60 or 90 days not only puts a major dent in your cash flow, it puts delinquent customers in an embarrassing situation because they know they are overdue. Often, rather than square the account, they put your receivables at the bottom of their payables pile and take their business to a competitor. To justify their actions, they may start bad-mouthing your company or complain about nonexistent problems with your product or service.
Call the largest accounts first. Most companies call their delinquent accounts in alphabetical order. Instead, forgo that approach and go after the customers that owe you the big bucks. Why? Because 20% of your accounts usually represent 80% of the dollars. Do your cash flow a favor by starting with the largest accounts and working your way down to the smaller ones.
Keep a log to track systems problems. Customers often become delinquent because of billing or invoicing errors on your part. By tracking your accounts-receivable systems problems and your solutions to those problems, you can respond to billing glitches in a timely and efficient manner, thereby eliminating a common excuse for late payments. A good tracking system also allows you to upgrade your business processes continually and provide better service to your customers.
Call at the right time. The best time to call commercial accounts is Monday morning. Start calling personal customers Thursday and go through Friday, when people usually get paid.
“Keeping current on your A/R collections requires having a system and a methodology for getting customers to pay on time,” Sanchez says. “Whether it’s you or someone else in your organization, simply pick up the phone and make contact. Call early, call often and sell the customer on the benefits of staying current with you. You’ll improve your cash flow, enhance your internal processes and build stronger, more profitable relationships with your customers.”
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If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit www.teconline.com.
