Collect Accounts Receivable FAST! part 2

May 15, 2005
s note: Last month, Robert C. () Ring began a discussion on how to collect your money promptly, while still maintaining a great relationship with customers.

Editor’s note: Last month, Robert C. (“Bob”) Ring began a discussion on how to collect your money promptly, while still maintaining a great relationship with customers. In this second half, Ring looks at key factors such as the art of negotiation, payment terms, and consumer financing.


What should you do when you present a proposal and your client asks, “Can you do any better?”

Don’t just lower your price. Tell your client that you’ve already given them your best price — you sincerely want their work, and you don’t give out fat prices like everyone else. However, if they’re willing to pay you in full for the project when they sign the agreement, then they can save 1 to 2%.

However, be careful. Don’t offer more than 2% without performing the same calculation for your customer that your vendors perform for you.

Payment Terms

Once you’ve received the down payment, establish the expectation that you’ll be collecting your final payment when the work is completed.

At our company, technicians aren’t permitted to leave a job without collecting the final payment. If they can’t collect, they must call our office and speak to our controller.

The day before a commercial job is finished, fax your invoice with a cover sheet reminding the client of your payment terms (as outlined in your agreement with them) and ask to have a check ready for your technicians the next day. It works!

But My Client Has No Money…

Don’t become your client’s bank. You have better investments to make than interest-free loans to your clients (such as paying your bills and earning up to 36%).

Credit Cards

If you don’t already, begin accepting major credit cards. Many trade associations, the Air Conditioning Contractors of America (ACCA), for one, offer discounted programs for credit card use. The discount or fee that credit card companies collect is based, among other things, upon the average “ticket,” or average sales.

With sales of several thousand dollars or more, HVAC contractors get one of the best rates available.

When you accept credit cards, the next time someone asks you, “Can I pay a little bit of my bill over each of the next three months,” you can suggest they charge the balance to their credit card. In this case, they can make monthly payments for as long as they want, and you get your money today.

Consumer Financing

Take advantage of consumer financing programs offered by many manufacturers and trade associations. Check with your bank or independent financing sources such as American General.

General Contractors

These are the toughest customers when it comes to collecting. Therefore, it’s crucial to know as much as you can about them. One means is to get a Dun & Bradstreet report from your accountant. Although it won’t provide complete information, any serious problems will be obvious.

Review your contract terms with general contractors and make sure they understand them.

Also, be sure to follow proper billing procedures. When payments aren’t made in accordance with contract terms, don’t be afraid to ask for payment. If necessary, be prepared to stop work on the job until payments are made.

Counter/Shipped Sales

Our company sells only basic maintenance items over the counter (e.g., filters, humidifers, pads).

All counter sales are paid for at the time of purchase. All shipped sales are shipped via UPS and are COD (except for maintenance agreement clients).

Don’t forget to cover the cost of shipping and handling. We take the UPS rate chart and add $1 for handling and charge the client for shipping and handling.

Collecting Money

Collecting money is a lot like shaving (and other things) — if you don’t do a little every day, you burn.

At the least, have biweekly accounts receivable meetings. Distribute copies of an aged A/R report to managers several days before the meeting. Take notes at the meeting as to who is doing what and when to follow-up on past due accounts.

Create a sense of urgency within your company about collecting money. Establish a daily target for cash receipts. Let your associates know when they’ve done a good job.

A Regular Routine

Send monthly statements to your clients, and remind them when they’re past due.

After 45 days, call the client. During the call, make sure they are satisfied with the service they received and ask for payment. Establish when you can expect to receive the payment. Always offer the credit card option if it seems appropriate.

If payment doesn’t arrive as promised, follow up. After 60 days, suspend the client’s account. Don’t let them receive a service call unless they pay you for the past due invoice.

If you get to 90 days, send a 90-day statement. After you send it out, contact the client a final time. If satisfactory arrangements can’t be made, then refer the account to a collection agency or, depending on the amount involved, to your attorney.

Collection agencies charge hefty fees — they receive 30% or more of the amount they collect. Make sure the work or services aren’t disputed before sending the account to a collection agency.

Prompt Payments Pay

We earned more than $10,000 in prompt payment discounts in 2004. In 2003, we earned interest on our savings that exceeded the interest we paid on all loans. We also strengthened our relationships with our key creditors.

By establishing firm policies and ensuring that everyone in your company is on the same page, you too should be able to achieve similar success. Good luck!

Robert C. (“Bob”) Ring is owner and executive vice president of Meyer & Depew Co., Kenilworth, NJ. He may be reached at [email protected].