In the wake of the COVID-19 pandemic, many businesses find themselves behind the proverbial “8 ball” and are searching for operating capital. One place to look may be your accounts receivables.
Collecting accounts receivables begins when you win the client. Just like good fences make good neighbors, good contracts make good clients. If you are not getting paid at the time you provide a product or service, it is a MUST to have a contract. Include specific provisions stating when payment is due, late charges or finance charges for accounts not timely paid, and attorney fee provisions if you have to retain an attorney to collect your money. Here’s a biggie! Actually get the client to sign the agreement. An unsigned contract is not worth the paper it’s written on, but a signed contract can save the day.
The second step is to actually send out your bills. Surprisingly, many small businesses do not do a consistent job sending out bills. Possibly the best thing you can do for your business is to pick one or two days of the month and designate those days as your “Billing Days.” Be consistent about your bills. If you don’t send them out, clients can’t pay them.
Step three is to regularly evaluate your accounts receivables. Most, if not all, accounting software has the ability to view accounts receivables. If you don’t use some sort of accounting software, shame on you! If this isn’t enough to change your mind, create your own A/R report. Accounts should be broken down by the number of days since the invoice, 30, 60, 90, more than 90 days. It should also state the client name and amount owed.
Step four is to establish a collection policy and stick to it. Have strict deadlines you follow to send reminder notices, call clients about past due accounts and finally, to turn accounts over to collections. One source I reviewed said that 20% of invoices over three months old are uncollectable, 70% are uncollectable after six months and 90% are uncollectable at 12 months. The faster you react to accounts receivable, the more likely to get paid.
If you have aging accounts receivable, King & King, PLC would love the chance to help. Visit our website at www.kingplc.com or give us a call at 731-664-6864. Your situation is unique so no matter what, talk to an attorney. As long as you don’t feed us after midnight, you will be fine.