Cash Flow and Collecting Your Receivables

cashflow 0129There’s a saying that I regularly remind myself with. It goes, “If it makes you money, it’s a business. If it costs you money, it’s a hobby.” And while in order to be a business you need to have products and services that people want, it’s no less necessary, more so perhaps, that you get paid for them.

It’s not only important to get paid, you need to get paid in a timely manner. Chasing accounts takes time that could be put to other uses.

Cash flow is paramount: You need to keep it coming in so that you can pay your payables in an, if not timely, at least not totally delinquent manner. I would argue that keeping your company’s receivables current is more important than most of the other tasks your company requires.

Central to a successful business is managing relationships. The stronger your relationships are with your clients the better, but even the best clients won’t pay their bill unless you ask them to, and clients with whom your relationship isn’t as strong will take longer to pay even after you invoice them.

Ensuring that you get paid on time isn’t always easy. However, there are ways to ways to make it less challenging.

First, ensure that the contracts your clients sign for their projects clearly lay out the terms for the payment schedule.
It’s especially true that large projects with multiple phase payments need to be clear on this, but all projects concepts require clarity, especially terms like “substantial completion” which dictate when the holdback gets paid out.

See related  Dealing With Uncertainty in Estimation

At the risk of sounding patronizing, if you want to get paid on time submit your invoices in a timely manner. As well, specify on the invoices what the payment terms are: Upon receipt, Net 30 days, Net 45 days, etc. This should already have been spelled out in the contract, but the accounts payable person at your clients’ office didn’t sign the contract, so they’ll need some guidance.

It’s also important to make one person in your office responsible for managing receivables. I’ve seen billing slip through the cracks because we all assumed that someone else is responsible for it. That sounds ridiculous, and it is, but it happens. Accountability lies with having one person managing this.

Tangentially related to the last point is the importance of maintaining open and ongoing communication with your clients. My own experience is that the solution collecting outstanding receivables comes down to asking for payment.

There’s nothing wrong with making a friendly phone call or email when a client is past due.

That’s also why I suggest that it’s always a good idea for the person responsible for receivables has a positive first-name relationship with their payables people in the client’s own office. Personal relationships are everything, as I said earlier, and small talk and cheer a long way towards getting checks cut and mailed out faster. With really big, important, long term clients, periodic small gifts like coffee and donut deliveries, or similar go a long way towards making people feel appreciated and on your side. Think of it as a business expense to maintain goodwill.