Your Profits: How to Improve Payment Collections and Cash Flow

Marco Terry
August 5, 2014
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Most small and mid-sized glass companies don’t have an organized collections process. Collections is something that they do whenever they have the time or need money. As a result, their cash flow suffers unnecessarily.

Most glass vendors send invoices promptly to their customers, as soon as their contracts allow. However,client payments are not always handled and monitored with the same care. A client payment that arrivesin the mail may sit on someone’s desk until they have the time to go to the bank and make a deposit.Furthermore, payments may not be recorded in the accounting system until the person gets around to it.

The result is that you often have no clear idea of who has paid you – or when. This uncertainty makes ithard to determine your cash flow and impossible to do collections effectively. Consequently, your business suffers.

Fortunately, improving your collections doesn’t have to be difficult or time-consuming. It’s a matter of using the right system. Follow these steps to improve your payment collections and cash flow:

Step 1: Streamline payments

The best way to receive payments is by direct deposit to your account. Seriously consider this option if your clients offer it. The advantages are obvious.

However, many clients still insist on mailing payments. Once payments arrive, you must endorse the checks and send someone to the bank to make a deposit. This time-consuming task often gets postponed until you need money.

The most effective way to process mailed checks is to use a bank lockbox. The lockbox is a bank service that receives payments on your behalf and deposits them for you. The bank scans the check and all accompanying documents and provides images that can be accessed through the Internet.

Using a lockbox can improve your cash flow and save time for your collections team. We have been using a lockbox for over ten years and have been very satisfied with it.

Step 2: Keep your accounting data up to date

Effective collections strategies require up-to-date information, so you must keep your accounting data current.

All commercial accounting packages, such as QuickBooks, include the option to download and reconcile data from your bank. I suggest you update your accounting data daily. At the very least, download the data and reconcile accounts before you make collections calls. The last thing you want to do is mistakenly demand payment from a client who has already paid you.

Step 3: Use an invoice aging report to pinpoint problems

The invoice aging report is at the heart of any effective collections program. It is a standard part of all accounting software packages. This report allows you to identify which invoices are late, and by how long.

Most reports usually follow the same format. Invoices are listed and grouped by categories. Categories include “Current”, “1-30”,”31-60”, “61-90”, and “Over 90”. The “Current” category lists invoices that are still current. The “1-30” category lists invoices that are past due by 1 to 30 days. The “31-60” category lists invoices that are past due by 31 to 60 days, and so on.

If your accounting data is up to date, you can use this report to make collections calls. Your first step is to contact clients soon after you submit invoices. Verify that they received the invoices and the necessary paperwork. This simple step alone can help avoid problems.

Contact clients again as soon as an invoice becomes past due by a few days. In your call, inquire if they have all the correct paperwork or if there are any issues. Ask if they can tell you when to expect a payment. Repeat this process if the invoice remains unpaid after 30 days and after 60 days.

Payments that are past 60 days often indicate that your client is in financial distress or that there is a serious dispute. If the issue is financial, consider structuring a payment plan with them. If everything fails, enlist the help of a collections attorney.

The author is managing director of Commercial Capital LLC, a leading provider of working capital to companies in the glass industry. Contact him at 877/300-3258.