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One of my clients is an attorney who has been in the business for a while. He had the same problem and started using self addressed stamped envelopes with his invoices. Lets just say that when I get his mail everyday there are plenty of checks-a-waitin'. Simple things like self address stamped envelopes makes the job of mailing off their payment much less of a headache.
I would give a due date. I also follow up, usually at the two to three week mark. I have found that about 30-50% of my receipts have have not been received or need to be resubmitted for whatever reason. If I follow up, I can get paid at the 45 day mark, instead of the 60 day or later mark.
The other thing that you can do, but that I have always shied away from, is to impose late fee penalties. Something like 1.5% for each month that the invoice is overdue is pretty standard.
Another thing that works really well is to find out if the firms do electronic payment. Most do, and those that do seem to pay right on the 30 day mark. Usually you have to give up all your vitals, but it's worth it.
My invoices have "Due on Receipt". Don't need to give the customer a future date to pay. Besides, most customers will pay when they are ready. Be it next day or next week or 3 months later. The only way around it is to have the credit card on file and run it when the invoice is still warm.
As to charging late fees. HA HA. The customer has accumulated 4 months of late fees. They pay the original invoice amount only. Now you have to write off the fees. Wasted time.
I'm still trying to collect invoices over 2 years old. They got the goods. I can't get the goods back. Small claims court is a joke.
I accept every new customer with the utmost hope that they will pay promptly.
My thoughts (without coffee).
I welcome yours.
You might want to think about offering a 2% net discount due in 10 days or something similar to that. Yes you are offering a bit of a discount but your money should roll in much quicker.
Offer 2/10 and they pay 60 days and still take the 2.
The bigger the company the bigger the machine the longer to get paid.
The smaller the company the bigger the excuses the longer to get paid.
Yes, I have some that get the invoice on Tuesday AM and the check is in the mail that PM. I've got some I will never get the money. They know that I can't/won't spend money to collect their $300 past due.
My advice to accounting clients is to state the Due Date or Due upon receipt. Then follow it up witha call normally 7 days after Due on Receipt and the same for Net 30, 7 days after the 30 days. Giving them cash discounts and finance charges has after 30 + years in the accounting business been hopeless. Keep following up every 7 days after the first call to 45 days from the date of sale. After that you get stern and forceful. At 60 days you need to threaaten credit action.
One very good method is to get all cleints to fill out a credit application when you set them up. Even if you give them cash terms. It weeds the late payers out and stops the defaulters.
What are your thoughts on a factor the receivables? Let me give a short explanation of what factoring is for those of you who might not be familiar.
A Factor is a company that purchases your receivables. As soon as you invoice your customers the Factor pays you a substantial portion of the invoice and keeps some back. Once your client pays the Factor, they pay you the residual balance less their fee (I've seen somewhere in the neighborhood of 2% of the invoice). The Factor takes care of the collection process for you.
That might be another option worth looking into.
Factoring is good if the amount of your receivable is large and beyond the capacity of credit that you can give to a client. Factoring for small invoices is costly and a hassle. Factors normally charge 6 to 8 percent depending on the credit worthiness of a client. If the customer is well known and with good credit factoring is easy. But if the customer is an unknown client then rates go up, factors start making excuses. If you have good credit a bank is a better alternative
A main problem with factoring is that you have to assign the receivable to a factor. They pay you the receivable and then collect from your customer. Customers normally dont like a professional "collection company trying to collect a debt they normally are willing to pay. They also dont like their credit being analyzed and rated by a third party. At this time you start loosing customers.
By the way I would really be interested in knowing the 2% factor. This is better than a cash discount.
I do have a certain number of clients that we have helped them increase their cash flow through the use of a factor. These clients are clients that don't yet qualify for a traditional like of credit offered by the bank. Once a client qualifies for a traditional line a credit the factor is no longer necessary - so for some it may be a good option.
The partner that I work with here on the West Coast doesn't care about the size of the invoice and the billing is arranged well in advance to have the invoices paid to the factor's lock box. For a business that is having trouble collecting their receivables this is just one option. It leaves the collecting to the specialists and allows you to run your business
Forget Invoice Terms. The secret to collecting accounts receivables is to FOLLOW UP.
With a surgeons office it might be easier than a hospital, but it should work
on all your clients. We do it and believe me it works.
The trick is to establish a rapport with the client (and keep notes of names and dates)
A week after the invoice goes out, you call just to make sure that it has been
received and when do they expect to process it for payment.
The week it is expected to be processed you call again to make sure
that there are no problems and that the invoice is included for payment.
Then you wait for the mailman. It sounds simple, yes and there will always
be exceptions. In the old days, I could collect a receivable by taking the client out
to lunch (and please bring the check). .
Good luck, LUCKIEST
I think Luckiest has the solution to the issue of collections as it perhaps applies in fairly well established businesses. There are cases, however, where follow-up in this kind of admirably structured way is not possible if only because it is time consuming. In my business, for example, where I've had to cut staff drastically at the end of the first quarter of this year, I have myself been forced to take decisions about time allocation to priority tasks in order fulfilment and accounts, etc. that have now been added to my "portfolio". Invariably, collections follow-up ranks second and third to the acquisitions, editorial and production priorities that determine whether or not the author's launch deadline we agreed on will be met. As an interim measure, for those accounts that were ridiculously past due, the re-hire of a former staffer to do these collections at 15% commission of invoiced amount has worked. For the rest, I guess I'll have to take it a day at a time, and use similar "task work" approaches more efficiently.
It is indeed useful to pool and sift ideas and approaches to challenges that are so very similar in small business (geographic and cultural differences notwithstanding) - whether in the area of receivables and collections, or in the daunting area of affordable funding - and wonderful to know that we are not talking about folding or giving up but constantly looking for workable solutions and healthy growth!
A couple of pieces of advise:
1. Get to know the folks who do billing, be friendly with them and you'll likely get paid faster or get an honest answer
2. Net means nothing, what you should do is after 15 days, send them a reminder postcard or email that the bill is do. After 30 days maybe a phone call is required
3. Depending on how out of hand this issue is, it may make sense to hire someone whose sole job is to track down your money and be sure you get paid on time.
I have actually 'fired' clients.
There are two companies that I will not do any work for. I was promised payment in two weeks that turned into three months.
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We currently invoice our clients (surgeons and hospitals) with "Due upon receipt" but our aging is getting out of hand. We are wondering if "Net 30 days" or "Due xx/xx/xx" would give us better payment results. Also, would inclusion of a self adressed return envelope help?