The year is winding up. Along with that, usually goes a little self-examination. One thing many firms are discovering as they go through this process is an alarming increase in old accounts receivable. By “old,” I mean A/Rs that are 120 days or older (not to say anything past 90 couldn’t be called “old” if you wanted to do so). There are many reasons for this occurrence. First among them are clients who are running out of cash to pay their bills. They are paying what they have to pay and not paying those they can get away with not paying. You may be an unfortunate victim if you allow this to go on.Here are a few thoughts on this growing A/R problem: Reserve for bad debts accordingly. If you are owed $1.4 million that is over 151 days old, why would you have a reserve for bad debts of $500K? It’s not enough. You need to face up to the real prospect that any A/Rs that old may not be collectible. Unless there are some real extenuating circumstances, I would reserve for ALL of this amount— and perhaps more. The problem is you have overstated your profitability.If you are not having your accounting/billing people call your clients’ accounting/accounts payable people within 5-7 days of sending your bill, you’re crazy! I may sound like a broken record on this one but EVERY time I see A/Rs out of control I ask if the firm is using this tactic and the answer is always “NO.” This is essential! “Did you get our bills? Do you have any questions? Has it been scheduled for payment?” Nothing offensive about this! Just common sense, good business to do it early instead of waiting 75 days to find out they either don’t have your bill or have an easily addressed question that you were unaware of. And, if you don’t want to make calls, send an e-mail with these questions and make sure you get a response.If you are continuing to pursue more projects with the same clients who don’t pay you, you’re mad! Why would you get even more invested in these kinds of bad clients?? Because you have no better ones? Nothing is better than working for people who don’t pay you. That is not the point of this business or any business— you are supposed to do something someone wants and then get paid for it. If you insist on using your project managers as front-line bill collectors, then make darn sure they make the calls. This will take weekly follow-up and a lot of peer pressure to show who is doing well collecting their money and who isn’t. Most firms do not hold their PMs’ feet to the fire nor do they publish for the whole firm to see just who is doing well and who isn’t collection-wise. Get the money now. The economy is getting worse and worse. If you think it’s bad now wait ‘til later. Collect what’s owed. Spend the time and energy it takes to get the money that’s owed you. If you sense you are getting the run around, get ugly if necessary. Now is not the time to be bashful. Be aggressive. Be insistent. Don’t be too tolerant of excuses for not paying. Final thought: When times get tough, don’t extend credit. Do the opposite. Tighten up your credit policies.Originally published 12/8/2008
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.
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