As of this morning, another 6.6 million workers have filed for unemployment, with millions more that are still waiting to register. Even though the NBER has not officially called a recession because they wait for the official GDP numbers, we are in one. There is no doubt about that; the only question is how long it will last. The answer to that is, no one knows. We have never in history had an economy come to a halt in a 30-day time frame. Our economists do not have any prior models to base a recovery plan from.
What can you do?
Companies that keep close tabs on their accounts receivable are less exposed to the outstanding debts of their customers. If you have not already done so, have your accounting team identify which customers have a pattern of paying their bills late and develop a plan to reduce risk immediately.
Keep a Close Eye on Your Cash
A business can quickly lose track of cash flow when everyone is busy getting sales and providing services to customers. Have someone dedicated to invoice, collect, and monitor customer payments on a minimum of a weekly basis.
- Collection Days
- Payment Days
- Inventory Turnover
These are the key indicators in determining your cash flow health; the higher those numbers, the worse your cash position will be.
Get Control of Your Accounts Receivable
Invoice daily on any time and material work you do. On contract work, invoice early and project your work completion percentages out for the month. Dedicate energy to collecting those payments as soon as you invoice them. Now is not the time to be shy about asking when you will receive payment.
If you do not offer discounts for early payment, consider offering one or two percent discounts for early payments made within ten days. Waiting for your normal thirty-day pay cycle may increase the possibility of a delayed or defaulted payment. If your customer’s payment goes beyond the due date, you must apply pressure on late payers. Remember, it is your money for services you have already performed.
Protecting Your Business
Make sure all payment terms are clearly outlined in writing and agreed upon with a signature before the commencement of any work. Your contract terms should include a requirement for an upfront deposit, with the balance due upon receipt or soon after that.
Taking on larger projects with new clients in these times can be risky since they do not have a prior payment history with your company. You must perform your due diligence on those new customers to make sure they do not have an adverse payment history or outstanding debts to other contractors or vendors. Ask them for credit referrals and call their references to inquire about their reputation.
Collection Tactics To Get Paid and Still Keep Your Customer Relationships in Good Order
- Let your customers know that you value their business and understand their situation, but inform them you must have their payment before you continue to provide services.
- Follow up with friendly phone calls and email reminders of payments due—never more then once a day.
- If you are not receiving a positive outcome, a registered letter should be sent to a customer requiring immediate payment arrangements for overdue balances.
- Try to negotiate installment payments, but do not continue to provide your service until they have caught up on the past due amounts.
- If they still do not pay, inform them that your attorney or collection agency will be handling their account.
- If the balance owed to you is significant enough to justify the cost, take them to court.
- Never be afraid to lose a customer over a late or unpaid bill. They are a customer not worth having.
There is absolutely nothing that will make your business one hundred percent recession-proof. But implementing the practices above will help ensure your business has the cash to survive tough times and come out ready for the prosperity ahead.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.