Have you ever looked at your aging report with high hopes that your over-60-days and over-90-days columns would just zero out this once? I have, again and again, and I’m pretty sure I am not the only one!
What’s happening with these clients? In this blog post, we’ll talk about the most common reasons these balances persist and how you can get them to approach zero the next time you look at your report.
The first reason is all about communication. Customers often suspend payments when a bill doesn’t jive with their expectations. A surprise is fun on birthdays and holidays, but never at billing time. If the amount that’s billed is higher than what the customer was expecting, then that can delay or jeopardize your payment.
If you’re new to the accounts receivable role, or are part of a newer business where invoicing is part of getting paid, billing with confidence and consistency is somewhat of a learned skill. Stay in communication with the client throughout your service period—especially if the bill or the project scope begins creeping up. Use a change order to gain the client’s approval for new costs that were not agreed upon in your original contract.
I had a client in Asia that wanted additional work done that was originally in the project scope but was cut due to budget concerns. I was already onsite, halfway around the world, when this came up. It would have been easy to just do it, but I held my ground, presented a change order, and it was not approved. This provided me with the ammunition I needed to say no to the extra work and avoided all sorts of issues with billing.
Playing lost on a TV show makes for great drama, but having your bill lost is not the type of drama you want in your business. Often with billing systems that send invoices via email, invoices become innocent victims of your customer’s SPAM filters. In other cases, a billing address or contact might have changed and caused a billing disconnect.
A helpful invoicing practice can be to request confirmation that it has been received by the person at your customer’s office—i.e. the accounts payable contact, finance manager or another person responsible for payments. If that’s not possible or not appropriate for your business, the next best thing is to follow up about a week before each of your invoices become due to ensure there are no barriers to an on-time payment.
Can’t Pay or No Intent To Pay
In some cases, vendors can’t or won’t pay.
An effective credit process early on can help root out these vendors before you do business with them. If the amount of the bill is significant to you or your business, run a credit check before you do the work.
For commercial companies, check out Dun & Bradstreet, and for individual credit reports, you can go to Experian, Equifax, and TransUnion.
If no report is available, it is common to request three trade references and a banking contact that can verify basic details about the customer before you start doing the work. In some cases, the best risk mitigation tool is to request that your customer pay 50 percent upfront.
And be careful. I’ve had clients tell me stories that a new client’s deposit check bounced after the work was done. The solution to that is to make the client wait as long as the bank makes you wait.
Perhaps your client has a lot going on. Small business owners are often in their forties and fifties, a time in life with a great deal of responsibility—children, aging parents, and their own business to manage. It doesn’t take much to overwhelm these people. A friendly reminder might be all that’s necessary to get your bill back on their radar screens.
Disapproval or Disagreement Regarding Deliverables
You strive to do a fantastic job for each client, but what happens when a client disapproves of the work you did for them? This, and other scenarios involving a disagreement about deliverables, can be a common reason for a payment’s delay and can represent an uncomfortable situation for both you and the client.
Most of us dislike confrontation, and we procrastinate rather than taking the first step in the confrontation. Once you’ve discovered that the bill is late because the client is dissatisfied, you can make it easier on the client by inviting them to share their concerns— and then listening as objectively as you can. This will begin the dialog that needs to take place for compromise or settlement.
Make it common practice in your business to request feedback throughout each project (and especially at completion) to ensure your customers are happy with your work.
Making big gains in your accounts receivable balances won’t happen overnight. Commit this month to identify a few key areas of weakness in your processes—and then take action. A few small steps each month might allow you to look up a year from now with a whole new outlook on your business.
Have other ideas that have helped you make improvements to your company’s AR process? Please share them!