The importance of re-visiting cashflow and collections

By Brian Ravencraft

Are you looking to stabilize the financial health of your business? Do you wish your cash flow was more consistent? Reviewing and revamping your billing and collection efforts is the first step to achieving these goals. 

A good lens to look through first is the one that focuses on the things you can control, such as quality of your products or services, and the efficiency of order fulfillment and distribution processes. All these elements can significantly impact collections. You give customers an excuse not to pay when an order arrives damaged, late, or not at all. Other mistakes include incorrectly billing a customer or failing to deliver on promised discounts or special offers.

We are all human and mistakes happen, but make sure you resolve billing mistakes quickly and ask customers to pay any portion of the bill they’re not disputing. Once the matter is resolved and the product or service has been delivered, ask the customer to pay off the bill. Depending on the circumstances, you may consider asking the customer to sign off on the matter by making a note on the final invoice. Doing so will help protect you from potential future claims.

Another thing you can control is how quickly you get those invoices out. Lagging on this effort can thwart your collection efforts. Familiarize yourself with industry norms before setting your payment schedules (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest customers have their own payment schedules, be sure to set them up in your 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 useful financial reports. Consider sending invoices electronically and enabling customers to pay online. You can still send statements out monthly as a routine reminder of balances due.

Regularly verify account information to ensure invoices and statements are accurate and get into the right hands. Be sure to set clear standards and expectations with customers — both verbally and in writing — about your credit policy, including pricing, delivery, and payment terms.

Despite your best efforts, you’re still likely to encounter slow-paying customers. Here are some strategies to increase your chances of receiving timely payments:

• Request payment upfront. Ask customers for a deposit on each order or provide a service retainer.
• Reward timely payments. Give discounts to customers who pay on time or improve their payment histories.
• Charge fees. Assess fees or finance charges for past due amounts. Place extremely delinquent accounts on credit hold or adjust their payment terms to cash on delivery (COD).
• Stay connected. Make regular calls and send email reminders to customers who haven’t settled their accounts. If necessary, either you or the manager who works directly with the customer should try to resolve the payment issues with your lead contact at the company or even the owner. Consider executing a promissory note to prevent the customer from disputing the charges in the future.
• Get professional help. If your efforts aren’t fruitful, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.

There is much about the current economy that’s unpredictable. So, it’s important for agribusiness owners to be proactive concerning the areas they can control. Good billing and collections strategies are integral to a company’s financial health over time.

If billing and collections is something you no longer want to handle for your company, many accounting firms can do this for you. Including Holbrook & Manter. As always, reach out to me with any questions you may have.  

Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.