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Everywhere, accounting firms diligently protect their clients’ best financial interests through consultation, employment tax preparation, annual tax returns, balance sheet and P&L review, and company audits. Frequently, the issue of “accounts receivable” might also be discussed, with recommendations made to clients to increase collection efforts to improve cash flow and profitability. Below you will find 3 Crucial Steps for Collecting Payments from Clients..

Likewise, many accounting firms may fall victim to the A/R woes. Clients may not promptly pay their accounting invoices, sending cash flow into the red. It is time that all businesses, including accounting firms, start accounting for your receivables!

There are three crucial steps to protecting the financial integrity of any business.

#1: State Your Credit Policy in the Initial Letter

No matter the size of your company, it is important to be assured that you will be paid promptly for services rendered. The best time to convey your companies expectations for payment is at the very start of the client relationship and then reviewed annually.

This is the perfect opportunity to express your payment terms. Outline when your invoices will be presented, when you expect the invoices to be paid and what you plan to do if a client becomes delinquent. When signing up a new client, ask who did their accounting work in the past. Are they jumping from firm to firm due to non-payment? After you review their company’s financials, you are uniquely positioned to determine the risk level of the firm based on the P&L and perceived the ability to pay.

#2: Develop a Clear Collection Policy

Most businesses have some fairly clear ideas about extending credit, how long they will wait for payment and how much they will allow customers to accrue. They may even have these policies in writing and signed by the customer. More often than not the collecting the debt stops there.

It is imperative to develop a very clear, thoughtfully orchestrated collection policy to guide billing staff through varying levels of delinquency.

A good collection policy includes the following:

  • Is a grace period offered and for how long?
  • Will a finance charge be assessed and how much?
  • What actions (telephone or in writing) will be taken at each level of delinquency?
  • What collection reminder/notice will be sent according to aging?
  • At what level of delinquency do you cease your services?
  • When do you write off the account as bad debt?
  • When do you place accounts with outside collection firms?

If an effective collection policy is put into action, then there will never be an occasion to ask, “What do I do next on this account?” The next steps are clear, concise and previously strategized by management. There are, of course, exceptions to every rule, so there should be a clear avenue to review unusual cases for timely mitigation.

#3: Establish a Culture of Paying – The Squeaky Wheel

Creditors who get paid first and in a timely manner are those who have built and conveyed a culture of paying. A culture of paying refers to carefully and clearly deciding who gets credit, meticulously following collection policies that are in place, and finally ASKING FOR THE MONEY!

“The squeaky wheel gets the oil.” This is the very foundation of a successful recovery strategy. The more often you ask to get paid, the more likely you will get paid.

The secret to collections: Follow up! Follow up! Follow up!

One of the mistakes accounting firms make in their billing and collections is the failure to ask for the money, whether by phone or mail. This is often due to the lack of time and resources within the accounting office. If the ABC Company promises to pay $500 on its invoice tomorrow and the payment isn’t in your office within three days, you must contact them immediately. A reminder call made three weeks later will ultimately teach the customer that your firm is not serious about collecting. You’ll be at the bottom of the payment priority list.

At one time, collection agencies were for older, bad debt. Now, they are partners in every stage. Collection agencies can send letters on your behalf, make soft collection calls in your name, engage in a variety of “pre-collect” services, work your accounts after write off, and even file lawsuits on your behalf. The use of this type of resource should absolutely be part of any good credit and collection plan.

Don’t throw in the towel. The time is NOW to create and implement practical steps to protect your financial resources.

Change is difficult and time-consuming, but necessary. How did you find 3 Crucial Steps for Collecting Payments from Clients? Was it helpful to you? If so, please share!

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Looking for more bookkeeping information or tips? Check out our post on Why Bookkeeping is Crucial to Your Success and Profit Building