Stop Making Excuses for Your Past Due Accounts Receivable

Feb 19, 2007

We have a terrible problem with accounts receivable in this business. The average A/E or environmental firm waits 80 days or so to get paid for their services whereas attorneys and accountants often get their bills paid in half that time. And I know a lot of firms— too many— that would be ecstatic with an average AR of “only” 80 days. Something is wrong! When I talk with principals working in firms in this business about their AR problems, I hear a lot of excuses. Here’s some of what I hear and what my response is to these often-used excuses for poor collections: “Our client(s) just won’t pay in less than 90 days.” Get some new clients then! Stop being abused by people who most likely agree to pay their bills in 30 days or less and then don’t do it. And if an entire class of clients doesn’t pay promptly, make some efforts to become less reliant on those companies for your workload. “We’ve never had an average collection period under ‘X’ days.” Just because YOU’VE never done better than that doesn’t mean it can’t be done. There are companies in this business, large and small, that have average ARs in the 40-50 day range. Why not find out how they are achieving these kinds of results? “Our project managers are afraid to ask their clients for the money.” You have one of two choices here: either replace the PM(s) or get your accounting department to handle all of the collection efforts. The latter option is usually cheaper and easier. Hiring and paying a new bill collector for a year will probably cost you less than the headhunter fee for a PM— not to mention the salary difference, risk in making a bad hire, and time that it typically takes. “Our accounting department doesn’t have time to make collection calls.” What are they doing that’s more important? And if they are understaffed, hire someone, for cryin’ out loud! Your entire firm is at risk when you have historically low cash flow. “Our accounting system doesn’t put out invoices in the form our client wants them.” Get someone who knows how to get what you want from your accounting system to help you on a consulting basis. And if that doesn’t work, get a new accounting system! “Our project managers don’t get their bills out in a timely fashion.” This is where you need to involve the PM’s boss— usually a principal— to put some heat on. And if the offender IS a principal, the CEO may have to get involved. “Our PMs aren’t doing a good job on the front end of the project with project initiation.” This is an easy problem to solve. DO NOT let anyone charge time to a job without first having a proper project initiation— NO exceptions to the rule. “Principal ‘X’ won’t let us make collection calls to his clients.” Get the CEO involved. This is an unacceptable situation. There is a body of knowledge on this subject— the problem has been solved before. Getting your average collection period down to 40-60 days will certainly involve changes in your contracting, invoicing, and collection processes. Make those changes instead of making excuses! Originally published 2/19/2007

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