How to Collect Cash Faster
May 01, 2013
The minute someone owes you money, you’re losing money. Here are some tips for streamlining your accounts receivables.
Nineteen years. 600 clients. And 27 bottles of Mylanta. That’s what it’s been like running my business. That’s what it’s been like collecting money, too. I’ve heard all the excuses. I’ve seen all the stories. And I’ve learned.
So let me share a few things I know now about collecting receivables faster.
The first thing I’ve learned is to not have any receivables. The minute someone owes you money, you’re losing money. So I’ve done my best to limit the amount of dollars I have on the street. For my service business I sell blocks of time. Clients have to buy a minimum four-hour block in advance of services performed. We charge our time against it in fifteen-minute increments and then send an accounting invoice (and ask for another block) when it’s used up. This system has worked well for me. Sure, some clients balk at the idea and when they do, I negotiate on the amount of prepaid hours. I typically never go below two hours, but they’re always paying up front so I’m never out of pocket. Money up front equals good cash flow.
Also, I take credit cards. In 2013, you have to! Sure there’s a fee, but I bake that into my pricing. Either way, the credit card fee pales in comparison to the money and time I spend chasing down deadbeat customers. I use PayPal and Square. It’s so easy nowadays for a customer to pay with a credit card – I don’t understand why everyone doesn’t do it. Plus, it’s not only more convenient for my customers, but I can occasionally persuade them to buy a bigger block of time because they’ll earn more miles, points, overnight stays or whatever is being offered by their carrier.
The truth of the matter is that I still have plenty of receivables, because customers still prefer to owe me for a block of time (we don’t provide service until it’s paid), or for overages on their block or for software and other products they buy from us. I read my accounts receivable aging report on the 15th and 30th of every month. It’s a terrible report to read because most of it represents work we’ve already done or product shipped, so it’s money owed to me. But, that’s all the more reason to stay on top of it. I circle the overdue items and those that I suspect may cause a problem, and I bring them to my bookkeeper’s attention.
That brings me to the best way to collect cash: outsource it. For years I would give myself nausea (hence the Mylanta reference above) every time I noticed a customer was past due. I would take it personally, until I ultimately decided to divest myself of the process and have my bookkeeper do all the collections. She’s a very caring and conscientious person but because it’s not ultimately her money, she doesn’t get too emotional about it. Which means she’s perfect for the job. She’s the bad guy and I’m the nice guy. She makes the calls, again and again. And I don’t have to think about it – I just do what I do best, and she does what she does best.