How to Collect from Clients
Collecting payment from clients is a matter of negotiating
terms in advance, separating collection and business functions,
and keeping internal accounting systems in order.
Very few entrepreneurs begin their business ventures
with the goal of becoming collection agents. Unfortunately,
some of us have found ourselves in this unwelcome role.
Developing a consistently successful accounts receivables
program does not have to be daunting. By following some
time-tested guidelines, you can implement a "win-win"
strategy that gets your invoices paid on time and allows
you to maintain positive, long-term business relationships
with clients. Here is how to do it.
Money Talks, and So Must You
Why do some business owners seldom, if ever, complain
about past-due balances, while others spend significant
time on this problem? Much of the answer begins long before
an invoice is sent. One of the most valuable changes you
can make in your accounts receivable process is to define
payment expectations with your clients in advance of services
performed. You can also enter into a formal agreement
that includes a sum to be paid up front, and then verbally
review what you will do for the clients. Here's how:
- Establish financial boundaries. Discuss money
during your first meeting with a client. Explain in
a clear and concise manner exactly what you will do
for the client, while clearly stating your compensation
terms. Your clear communication during this meeting
is essential because it establishes important financial
boundaries with the client.
- Formalize an agreement. The boundaries discussed
at the initial meeting should be documented in writing.
In an agreement, list the specific services to be performed
or work to be delivered and the estimated cost of the
services or work. This agreement should explicitly state
that your client owes you money for work performed or
services rendered. The agreement should also specify
the terms of payment, including the payment you expect
in advance.
- Request money in advance. If it is the accepted
practice within the industry, business owners should
request a portion of their money inadvance. Using the
terminology of the industry is important, such as "deposit
on hard goods" or "retainer on services."
This allows the client to understand you are asking
for something that others ask for as well.
- Review verbally. Review the agreement with
your client before signing. This will enable you to
reinforce the financial obligation that the agreement
specifies. You can also use this review to inform your
client about the value of your work. Tell the client
exactly what you are providing for a specific dollar
amount, and therefore defining the client's expectations.
There should be no question at the end of your meeting
about what is being delivered, when to expect it, and
how much it will cost.
Do Not Make Collection Calls
Your next step in the accounts receivable plan is separating
yourself from the collection process. Your business role
now becomes fostering a long-term relationship with your
client. This involves two steps:
- Designate an agent. It is imperative that the
task of reminding clients to pay their bills, as well
as more advanced collection activities, be undertaken
by someone else in your office, such as an office manager
or administrative assistant. You might also hire a third
party to handle the job.
- Distance yourself. When you have designated
an individual to serve as your accounts receivable manager,
you can distance yourself andyour business role from
the collection function. If a client calls you to complain
about a collection call, you can respond with acomment
such as, "I'm glad you contacted me. I'll talk
to my accounting department about this. I'm sure we
can get it straightened out." This separation allows
you to maintain a different image in the mind of the
client.
Stay on Top of Your Invoicing Game
This brings us to your internal accounting procedures
and how they affect your accounts receivable plan. The
rule here is: keep your side of the street clean. Here's
how:
- Set billing standards. Do not expect your client
to pay an incorrect invoice, or to pay the invoice on
time if it is sent out late. Allow ample time for your
clients to meet your agreed-upon payment terms.
- Set accounting standards. What is the best
way to ensure accurate and timely invoicing? Consider
the method you now use for billing your clients. As
your business grows and changes, look for an accounting
system that provides features such as automatic updating
of customer and inventory balances and flexibility for
modifications.
Solve Your Accounts Receivable Problems Today
Having involved yourself in setting the payment agenda,
distanced yourself from the billing process, and put your
internal systems in order, the final step is collecting
from slow-paying or nonpaying clients. This requires you
to be especially delicate. Follow these steps:
- Use late-payment fees. While it is almost impossible
to collect late-payment fees in a commercial business
relationship, you might use them as a tool that brings
a collection problem to light. When negotiating for
payment, you can say, "If you overnight your payment
tous, we will remove all or part of the finance charges"
that will occur after 60 days.
- Bring payment issues to a head. For really
stubborn payers, it may be necessary to confront the
problem directly. The best time to do this is at the
most critical stage of the client's project. Make it
clear that a delay in payment is forcing you to stop
work on the project so that your business can survive.
- Consider arbitration. When it comes to legal
action, only the lawyers make out in most cases. You
would better call for arbitration when an agreement
or contract is disputed. This is less costly for both
parties, and allows issues to be resolved faster.
- Stay calm, be fair. Treat clients as you would
expect to be treated. Stay calm at all times, repeat
options verbally and in writing, and consider compromise.
Most clients who want to do business with you would
rather keep you happy -- and paid.
From: EntreWorld | March 1998 By: William H. Mills
William H. Mills is president and chief operating
officer of Software Business Technologies Inc., and its
subsidiary, SBT Accounting Systems.
