Tips for managing your receivables and collecting money

If you work in an industry where you get paid after your work is complete or your product is delivered, you may have receivables and collections to perform every month. Many small businesses and freelancers do, unless they run a cash-only retail store!

Here are some ways to minimize your receivables and collect money more effectively.

1. The best defense is a good offense. Collect some of the money up-front, and at various milestones in the delivery. If you don’t normally deliver with milestones, consider how you can in order to minimize your risk. One freelance designer had a customer who started ignoring phone calls and marking his emails as spam. Fortunately, he had been paid in milestones and lost very little on the project.
2. Incentivize instead of punish. Some businesses charge a “late fee” on their invoices if the customer pays past a certain period. This is understandable but for customers who are already in difficult financial circumstances, the fee just makes paying that much harder. Instead, offer a percentage off if the customer pays their invoice early. For example, send an invoice for $100 but tell them that the invoice is only $95 if paid within 2 weeks.
3. Don’t procrastinate. The longer you leave someone between project completion and billing, the less likely you will be paid. If you bill at the end of the month, you could potentially get stung on deals that finished in the first week of that month and then had 3 weeks of no reminders to forget about the value you provided them. Bill right away. A short term leasing agent I know made the mistake of billing at the end of each month and would often get customers calling to complain about the bill 45 days after they finished with their equipment. They didn’t remember needing the equipment and didn’t feel compelled to pay.
4. Don’t procrastinate part 2. When following up on an invoice, don’t wait a full month. The older an invoice gets, the less likely you are of collecting it. Follow-up within 2 weeks. And then at a month. And then at 6 weeks. And then at 2 months. And then every week after that. Mark your receivables as 30 days old, 60 days old, and 90+ days old. Do what you can to collect them all but the 90+ ones are not likely going to get paid.
5. Leave no stone unturned. When gathering information at the beginning of your project, gather information that you can use in your collection methods. One colleague knew that her client sometimes spent time on a certain golf course. She tracked down her client on that golf course and got paid for her work.
6. Don’t fall for “the check is in the mail”. That classic excuse is as old as the hills. When a customer tells you that the check is in the mail, ask them how much it was for, when it was sent, and what the check number was. That usually catches them in their lie. And if they sound convincing, call them up after the week is through and tell them how disappointed you are that they lied to you.
7. Keep track of everything. Record all of your attempts at email and telephone calls. Knowing the details will help you to be prepared if you ever need to take them to court. One colleague did this and when the customer returned to the office to buy again (but dealt with another employee) that employee had enough information to collect payment on the first receivable.
8. Break it up. Break up your customer’s payments into smaller amounts and see if they can pay that. If you have a long project, or your customer’s payments are extended over a period of time, be aware that financial circumstances can change for a customer. They may have had the best of intentions when they initially contracted you but things could have changed over time. This is the reality for a lot of financial institutions in America right now as lenders try to make concessions for home owners whose circumstances have changed.
9. Consider trade. If a customer can’t pay in cash, they might still be able to pay – by providing services or even assets. If they provide products or services that you need, suggest that they pay in equivalent goods. If you’re not sure what they can provide, suggest it anyway, they might be happy to cover a debt with something that they didn’t need but which you do. One colleague had exactly this experience when one of his customers couldn’t afford to pay. He recommended some kind of trade and she handed over her memberships to several pay-per-use websites whose software she no longer needed but he did.

Jessica Routier, IAC-EZ

Jessica Routier

Jessica wants to talk to you! She is who coordinates the contests, travels to all the conferences, and interfaces on a fun level with customers on a daily basis in order to bring our users together as a community.

Jessica has a B.Admin and an MBA. Her background in business, along with a diverse skill-set (including a diploma in Medical Transportation, retail experience, and experience as a paralegal) make her a valued, highly flexible team member.

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