It is not hard at all to improve your cash flow and profitability through better attention to and management of your accounts receivable. All it takes is the 5 R’s: Right, Responsibility, Regular, Respect and Reality.
Right – First and foremost, you have a right to be paid for a product or service you provide. Do not ever apologize for asking to be paid.
Responsibility – Your right to be paid is not a passive one, because you are responsible for taking charge of your customer relationships and creating an environment that lets people understand what your product or service entails, how much it costs and how you want to be paid. Make it easy for people to pay you using several different payment options.
Regular – A consistent effort is key in both your billing practices and your in-house collection procedures. Your bills should be simple to understand, legible and you should bill promptly and regularly. You must review your aging receivables at least every 30 days and have a system to follow up with delinquent customers.
Respect – If you are not paid for your work, you may feel angry. That is natural. However, to be effective, you must be aside your personal feelings and focus on getting paid. If you hire an attorney or debt collector to assist you, do not focus on the cost of those services, but rather work with them by providing information that will help the recovery process.
Reality – You can recover some of your bad debt, but you are unlikely to recover all of it. While you want to give your customers every opportunity to pay you, waiting too long is not a good idea. Be realistic. If you have billed someone for months and gotten no response, it is time to bring in outside help. Offer a small discount for a lump sum payment. Focus on what you can get, and let go of what you cannot.