Strategies to ride the recovery
by Lindsey Norris
There are a dozen ways to handle overdue accounts. In April last year, Linamar, which manufactures auto components, took an unusual approach. It released a press release detailing its accounts receivable from Chrysler and General Motors, stating that its outstanding accounts for 20 days or more totalled less than $30 million. Since the health of your accounts receivables is a mark of the health of your company, Linamar’s release was meant to reassure investors while continuing a campaign to convince the government to insure accounts receivables from the big automakers. Here, then, are a few less complex ways to get your money in the bank.
Take Tardiness Seriously
With everything else on your plate, it can be easy to let late payments slide. But outstanding accounts steadily erode your profit margin. Lynn Brown, the owner of Edmonton’s DG Credit Management Consulting Inc., says while the cost of carrying a tardy account is complex, there is a simplified formula: for every 30 days a customer is past due after 60 days from the date of invoice, they can shave 2% off their profit margin – so, at the 150-day mark, your profit has dropped from, say, 25% to 19%. More than enough to warrant paying a little more attention to when the cheques arrive.
Marry sales with receivables
In a tough economy, your sales force may be promising the world to make a sale – including 90-day terms. Brown suggests that better communication between sales and accounting will help ensure you’re selling to the right customers (with good credit) and maintaining good customer relations. “At the end of the day, no matter how good a job the salesperson does, accounts receivable is the last person that customer talks to, and you’re talking about money. You have to make sure that conversation is not a negative one,” she says. So when an account is overdue, ask nicely about their situation. If they are in financial difficulties, maybe you can negotiate a payment schedule. A positive interaction may also help bump you up the payment list.
Play hardball
There are certain scenarios when you can get serious: “If no one is calling you back, or they’re making unfulfilled promises, or they outright say, ‘You aren’t getting any money,’ you don’t have a choice but to do something drastic,” Brown says. “The most important thing when collecting money is that you don’t issue idle threats. You explain the consequence and you must make it happen, or you’ll lose your credibility.” And while this should go without saying, there are laws. Abusive language, threats or the slightest resemblance to a loan shark may soon give you a lot more to worry about than outstanding invoices.
Know who holds the purse strings
You have to assume that all companies want to pay. If they aren’t, you need to find out why. Delays may have less to do with customers than your own paperwork. In many instances, the people who order the work have little contact with the people responsible for paying accounts. For example, in construction, Brown says the sign-off may have to come from head office, not the field. Asking the right questions of head office and finding out exactly where your invoices should be sent, and to whom, can streamline the process.
Prepare for it
Let’s face it: times are still tough for a lot of companies, and while it would be lovely to stop supplying tardy payers, you may find your customer list dwindling to alarming lows. Offering a payment schedule may help you keep a client long term and get paid. For that to work, your cash flow has to be in good shape (which should be a top priority regardless). Many banks, as well as Export Development Canada, also offer accounts receivable insurance.
Next month: Integrating new staff into your team
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