Singin’ The AR Blues? How To Get Your Business Mojo Workin’ Again (Part 2)

In our previous blog we began exploring the benefits of changing your invoicing policy and how that one small change can effectively save you from becoming a casualty of your clients cash flow problems. Today we are looking at the specifics as to how to go about putting that plan into action.

Very few business owners start their company with the goal of becoming collection agents, so being put in that position can lead to avoidance. You have a personal relationship with your clients and it can become an emotional issue for many small business owners—who wants to add stress to people you know are already struggling? So let’s take the emotional baggage out of the equation by setting up some simple guidelines that communicate your expectations and provide more up to date information for your clients that will help them better budget their payments so you get to avoid being “the bad guy”.

No doubt about it, invoicing is tedious. But with a little tweaking, the process can be improved to make communication between you and your clients/customers more frequent and reduce accounts receivable aging.

Avoidance and lack of communication leads to misinformed or uninformed (and eventually very frustrated) clients, this is often the first mistake that starts you on the road to the A/R blues. Unappealing as it may seem, staying on top of your invoicing improves your cash flow, helps you identify problem clients more quickly, reduces invoice disputes since clients still have the transactions fresh in their heads, and improves client relations because it helps your customers manage their own cash flow.

Your new mantra: Invoice clients/customers promptly and more often!

So where do we begin? As with most things, having the right tools for the job can save you time, frustration and money. The invoicing process can be drastically simplified with commonly used accounting software packages like QuickBooks which will automate the invoicing process, producing professional looking invoices that can be mailed or e-mailed to your clients. The power behind most invoicing systems is that you can enter time, products and reimbursable expenses into the program’s customer center during work hours and invoice on a daily basis if needed. Yes, these systems can take some time to set up and often the use of a consultant to guide you through the installation process, however, the upfront investment of time and money significantly reduces the time and embarrassing mistakes that can ultimately show up on your invoices down the road.

How often you invoice is up to you, but ideally you’ll want to shoot for invoicing on a weekly basis or a biweekly basis. Invoicing on a daily basis any finished work is a great way to stay on top of your invoicing workload too. This invoicing schedule might seem somewhat overkill, and you may be worried about your client’s reaction to the change but think of it more like a marketing campaign than billing. “The squeaky wheel gets the grease” and the more often you correspond with the customers, the more likely your invoice will fall at the top of their list for prompt payment.

Okay, so you’ve got the “why” and you’re ready to get your accounting software setup, now let’s outline the steps to implement your plan of action:

1. Invoice your client and include that the amount was either deducted from their prepaid account or that the invoiced amount will be deducted from their payment account on file (Credit Card, ACH) within 3 business days of the invoice date. Always, always include an invitation to call you if they have any questions.
2. Prepaid accounts need to be notified of their balance and any additional payments needed to keep their account current in order for work to continue. If this prepaid account runs out, then work stops until additional prepayment funds are received.
3. The accounts are then paid within the 3 business days of the invoice date and either accepted or denied by the credit card merchant or bank.
4. Any denied accounts are promptly followed up on and any work on that account is stopped until the invoice payment is satisfied.
5. Clients who do not follow up on denied accounts are placed into the collection process (this will come later in our series).

This process is service-based but can be easily modified for retail business: Payment must be received in full prior to delivery. Better yet, never order product for the customer until the client has at least paid your costs on that product by requiring a non-refundable deposit.

Don’t allow yourself to be at the mercy of your clients; take your power back by implementing these simple and extremely effective processes! It’s not rocket science, but there are still companies that will not subscribe to these simple rules who will find themselves singin’ the A/R Blues and, sooner or later, out of business.

Be proactive with your client communication and be honest about your expectations; you’ll have happier clients, enjoy your business more and have the satisfaction of seeing it thrive.

_{Fred Daus is the Chief Executive Officer and founder of Fredrick James Accounting, Tax & Consulting. He is a member of National Society of Accountants and the National Society of Tax Professionals and has been helping clients save money and grow their income since 2001. Fredrick James is an innovative, full service accounting firm in Clearwater, Florida with a focus on providing outstanding service, tax savings and financial growth to clients in the Tampa Bay area,  Nationwide and around the world. Visit our website www.FredrickJames.com or call 727-230-0716 for more information.}