Last week I talked about invoices getting lost in the layers of business. In that blog post I shared how you can increase your bottom line 15% simply by taking a proactive approach with your accounts receivable follow-up.
This week I’m talking about how your company handles its accounts receivable follow-up and how that impacts your bottom line.
Here’s my question for you this week: Is your follow-up a benefit or an obstacle?
Some companies use reminder statements as a method of collection. From my perspective, a reminder statement is a good way to communicate that the invoice is still owed, but should not be considered the only form of collection. Paper doesn’t collect, relationships do.
However, if you do use reminder statements as a method of collection, make sure the method is a benefit rather than an obstacle.
What are your policies or practices related to your reminder statements? How soon after you send an invoice do you remind your client to pay the invoice?
I worked with a large company in Atlanta and found out they only sent reminders once an invoice was 90 days old—and only if the Partner didn’t preempt it. By waiting 90 days to follow up, they were indirectly telling their clients that they really didn’t need a payment or expect a payment prior to then.
Remember the story from my previous blog where the homeowner thought they could pay their HOA dues whenever they wanted? This firm was projecting the same message. By waiting 90 days, they were essentially saying, “You can pay us when you want to pay us, and that’s ok with us.”
If the process doesn’t even begin until the invoice is 90 days old, it will probably take another month or two before someone in your business accepts the fact that the client isn’t going to pay without more follow-up.
I once worked with a publicly-traded manufacturing company that was about to go bankrupt. I learned it took about 120 days before they finally sent their reminders. One of their customers responded, “Hey, I was hoping you’d gotten sloppy with your accounting records.”
This customer was thinking they must have lost the invoice, otherwise why wouldn’t they follow up before now? This customer was also thinking that obviously it wasn’t important to the company that I pay. And this customer is now thinking okay, now I know I can wait four months before I pay the next invoice.
Trust me, they will follow your lead.
If you’re leading with the message that you don’t need their payment for 3-5 months, they will hold their payment. But don’t expect them to then jump through hoops when, all of a sudden 3-5 months later, you decide you need the payment. The collection process is just getting started. They could very likely follow your lead again, and take another few months to pay you.
I’ll talk another time about the significance of the information on your reminder statements. Until then, what message are you sending with your reminder statements?