“We need to collect our money sooner. With dragged out collection periods, most companies don’t have the working capital they need without borrowing.”
I think most people who own AEC firms KNOW how to collect their money if they really want to. They simply have to aggressively call their clients once the bill goes out and make a pest of themselves. To the extent they are willing to do that determines how quickly they’ll get paid.
Some people in our business will do that. But most won’t. These people are more protective of their client relationships. Plus, they are too introverted. So, large accounts receivable balances for firms in this “industry” are the norm.
But the fact is, we need to collect our money sooner. With dragged out collection periods, most companies don’t have the working capital they need without borrowing on a bank line of credit secured by their receivables. That increases the overall risk of the enterprise. I know of companies that were shut down – even though conventional wisdom says that never happens – by their lenders for having too much AR and not following all the covenants on their lines of credit.
So, what can you do to get your money sooner without feeling like a jerk come collection time? Here are some proven tactics:
- Write your contracts in such a way that you can bill sooner. Nothing says the old traditional milestones in terms of percentage-complete billing are cast in concrete. Come up with new ones that allow you to bill sooner. Or bill every week instead of monthly.
- And speaking of early billing, how about a retainer or advance payment to get started? Just like you can’t win the lottery without buying a ticket, you won’t get a retainer without asking. Just remember, you are very busy and having a hard time meeting your commitments as it is. If a client really wants you, they too should show some commitment.
- Speed up your internal processes. If it takes you a week or longer to get a bill out, there’s something wrong with your internal process. Change it. You should be able to get bills out quickly any time you want to.
- Once the bill does go out, don’t act like you can’t do anything if you don’t want to pick up the phone to check on payment status. Be sure to do things such as show all previously billed but unpaid invoices in your “total due and payable” on all subsequent bills. And send that bill a second or third time if you have to in order to keep reminding your client it is unpaid. Don’t use “statements” either. No one pays a statement. They pay invoices.
- Accept electronic wire payments. ACH transfers. Even take credit cards if you are willing to eat a couple points on each payment to get paid faster.
So remember, if you are short on working capital and need your money sooner, don’t despair. As I like to say, “There’s always something you can do!”
Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.