Every owner in an A/E/P or environmental firm knows you can make all the paper profits you want, but unless you turn those profits into bank deposits, you have nothing.I’ve written so much about cash flow over the years that sometimes I think there isn’t much more to say. We have clients with average collection periods (ACP) in the low 50-day range— some even down to the high 40s. Then I see a firm with a 127-day ACP that thinks they’re doing well because they used to have a 153-day ACP, and I know I still have work to do. Here are nine proven ways to help your cash flow:Keep the problem at the forefront. One way to make headway on a problem is to keep reminding yourself of it. I’d make darn sure that the receivable reports coming out of my Harper and Shuman/BST/Sema-4/Wind2/etc. system always list accounts receivable from the oldest to the freshest. I want to see that old money up top! This is contrasted with the “standard” reports most software packages produce that show accounts receivable listed by client, from A to Z. Another thing you can do is publish, on a weekly basis, the amounts and percentages of total accounts receivable that fall into the over-90-day category, the over-60-day category, and so on. This helps keep the spotlight on the problem. Talk about it. If you have a cash flow problem, it should be discussed at your company-wide meetings, your management meetings, your operations committee meetings, and so forth. Keep everyone focused on it by showing that you are concerned about it. Don’t ignore it and hope it will go away. Use peer pressure. Why not publish the average collection period by PM, by principal, or both? Why not do the same with unbilled work-in-process? Let the worst offenders be shamed. Let everyone see that they are not dealing with their problem. Believe me, this may be one of the most important things you can do, yet most firms are hesitant to do it. Why? I don’t know— I guess that they would rather borrow money or go out of business than embarrass one of their people. Personally, I find it much more embarrassing not being able to pay my bills than I do harassing one of our people to collect money that is owed to us for doing what we said we would do. Prepare good invoices. Many firms still don’t do this! Their invoices are so confusing you can’t even tell how much money is owed to the firm after you read them! The total should be bolded and double underlined. It should include previously invoiced but unpaid amounts. The invoice should be called “invoice,” not “statement.” The job name should be clear. It should be signed off on by the PM or PIC. No detail should be given on reimbursables unless the client wants it. Turn the bills around. Why do some firms allow their PMs/PICs to take weeks to get a draft bill back to accounting? This makes absolutely no sense. The draft bills should be turned around within 24-48 hours, max. It’s hard to think of something more important to A/E/P or environmental firms. If you don’t get the bills out, you won’t get paid. Then there’s no money to pay your people! It’s like 2 + 2 = 4; in other words, one of the fundamentals of business! Use accounting staff for front line collection efforts. These people, not the line managers (i.e., PMs) should make the first efforts to collect the money. There are three reasons for this. First, anything you can do to help out an overloaded PM is probably a good idea. Second, the PM will probably procrastinate, and not do it anyway. Support people can be counted on to make this a priority— it’s their job. Technical people often think their only job is design or technical work. And third, many times clients don’t pay because they are upset about something. Having someone other than the person they are upset with contact them may bring this fact out. Regularly monitor client satisfaction. This is a continuation of my last point above. Clients don’t pay when they are angry. It’s sort of a “distress signal.” When you have a regular polling process of clients (not just past clients) you may find out about problems you can do something about before they get out of hand and the client holds up your invoices. Be selective about your clients. You can’t just accept anyone as a client. I always advocate checking the credit-worthiness of any new client before agreeing to work for them. I always confront previous clients who were proven slow payers before doing more for them. Market your firm effectively so you have plenty of good clients who pay their bills. The alternative is to not market, and accept whatever client comes along, good-paying or not. That just doesn’t make sense. One bad or no-pay client can ruin your entire livelihood. Have some discipline! All of the above need to happen all of the time. If you are the boss, stop being so tolerant of the excuses. Get mad. Enforce the rules. Check to make sure it’s all happening the way you envisioned it. I want to assure any “Doubting Thomases” that all of these collection problems have been solved before. You don’t need to reinvent the wheel. You do need to do what is proven to work, and do it all the time.Originally published 10/13/1997
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