Receivables and Business Health

As business owners, finance and cashflow are important parts of keeping a business going. With poor cashflow or finance management, it truly becomes a challenge to grow any business because instead of working on bringing in more business which results in more profit, the business owner spends time on worrying about the financial health of the business. In such a case, it’s hard to focus on delivering top-notch service to clients with all the time spent firefighting.

Fortunately, as a business coaching and consulting company, we’ve not had to deal with deliquent accounts. Delinquent accounts are considered poor quality clients and we would rather not work with them and prefer to work with clients who bring joy to our work by implementing our recommendations and paying us on time.

For other business owners though, it is a real challenge to keep up to date on receivables. These businesses traditionally operate by offering products or services first prior to actual payment. Some don’t even collect a deposit or setup fee and are operating at a potential loss upfront.

While it is hard to change the way such businesses collect on their funds, it can be managed properly.

Forbes reported on when receivables become delinquent and hard to collect. A graph by the Commercial Collection Agency Association shows telling signs when debts owned become loss write-offs.

accounts receivables

In this graph, you’ll see that the probability of collecting on monies owed drops from 94.9% (by due date) to only 22.8% (within one year). This data is a clear indication that aged receivables are not healthy for any business. Collecting on such accounts has to be done swiftly if you expect to see any of it.

In cases where those clients are close friends or associates, it can be even more difficult to ask for the money when it is past due.

As a business owner, however, you need to put things in perspective and work out the problem systematically. By identifying what is causing the delay, you can help prevent further abuse of credit extended to your clients. Make an effort to communicate with them first before resorting to more extreme measures like commercial collections.

If the payment is habitually late, it’s time to let them know that the practice is no longer acceptable and could in fact jeopardize your business’ financial health rendering you incapable of servicing them in the future.

If after speaking with the client and you find that they are in a temporary financial jam at the moment, it could be advantageous to work out a payment plan. That way, you can still receive your money back rather than none at all.

If the payment is late and the client continues to give excuses, consult with an attorney to see if it is appropriate to have the attorney draw up a letter of demand for the overdue amount. In many cases, this solves the problem because people don’t enjoy being sued.

If the letter does not work, a collection agency might be an option. Since they are paid a percentage of the amount they collect, there is little risk. The only thing you have to make sure is that the collection agency is reputable and doesn’t resort to underhanded tactics that could embarrass your company.

Most importantly, train your clients to pay on time. Many times, it is a habit built-up and a behavior that’s been condoned by inaction that has caused this problem.

While the above article does not constitute financial or legal advice, it gives some insights into common issues plaguing business owners. Consult with a legal or collection professional if you really do encounter collection difficulties that seem over your head. Deal with them early rather than avoid them because it’ll be the best move for your business’ financial health.

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