That creeping AR problem

Aug 10, 2009

One would think that with the business climate being what it is for A/E and environmental firms (lower volume and less profit), that everyone would be staying on top of their accounts receivable. But, guess what? It’s not uncommon to see firms in our business with 100-, 125-, and even 150-day average collection periods that are getting worse. Let’s not debate about whether or not these kinds of numbers are “normal.” Yes, as a group of firms we pretty much stink at getting paid, with 80-day average ARs being typical. Combined with little or no profits, that makes it hard to understand how any firm can stay in business with so much out there and owed to them. What can you do if your accounts receivable are creeping up on you and getting older, when you can least afford to be without the cash? Here are some suggestions that are certain to help: Do your due diligence. Don’t assume you know what the problems are and why your ARs are aging. Get the facts! Is project initiation being done properly? Is the billing process being done properly? Are you working for clients you shouldn’t work for? Is the collection process being followed? Do you have a couple principals or client managers who represent all the problems and everyone else is doing a good job? What are the real problems that are leading to all of the AR? Keep your eye on the ball. By “the ball” I am referring to the collection issue. You have got to keep the focus on it. Send out e-mails. Put it in the company report. Talk about it at management meetings. Devote the manpower resources required to solve it. Stop working for bad clients. You know who they are! I hate to say it, but for most companies these slow-pay clients tend to be either other firms in our business or local developers. Stop working for them! Those clients who never pay you on time should be dumped. Start calling people on the carpet. I’m not talking about clients, either. I am talking about people inside your company who don’t follow the processes laid out, who don’t have any common sense, who slow things down, and who act like getting paid is a secondary priority. You will have to get confrontational. It won’t always be fun. You cannot always be the nice guy— you just can’t IF you are serious about solving this problem. Follow all details of your collection process religiously. Most companies know what they need to do to collect their money, but just do not do it for any number of not-so-good reasons. Eliminate all opportunities for stopping the collection process. Do not allow principals or client managers to stop the collection process to protect their pet clients for any reason. We see this often. It is without a doubt one of the root causes of creeping AR. Make collection calls yourself. Set an example. If you want other people to do something you should do it. And better yet— you should do it well! This is crucial. Be successful at collecting old ARs and show them all how it’s done. Track your results. Keep working on the problem until it is no longer a problem. This stuff is nothing you cannot do. It is all solvable and has been dealt with thousands of times before in other firms in your business. I never thought I would quote Michael Jackson, however, “Don’t stop ‘til you get enough” seems appropriate here! Originally published 8/10/2009

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.