Prioritize Accounts Receivable Collection As Interest Rates Rise

by Doug Smith, President, The Woodhaven Group 

A smart business person must have a successful cash flow strategy that is proactive and anticipates the impact on consumers and businesses from changes in the economy.

We are in the midst of rising interest rates taking place for homes, credit cards, and autos.  Combine these 3 critical areas with the fact that household debt continues to exceed household disposable income and that could be a formula for a potential decline in consumer spending.

If consumers have to pay off high existing debt with increasing interest rate levels it could slow up the purchases of consumer goods, both small and big ticket. The result would be a drop in revenue at businesses and a decline in their cash flow.  You could end up seeing your accounts receivable balances increase as your customers find it difficult to pay your invoices.

Don’t let this happen.  Have a strategy in place to collect your accounts receivable and keep the total balance outstanding  in line.  Do the following:

  1. Understand that as a company your employees and shareholders deserve to be paid on time for their efforts.  You put out a quality product and you stand behind it. 
  2. Assign a key manager to track accounts receivable balances and make that person accountable for making sure balances and aging do not get out of line.  Notice I said a manager and not a clerk.
  3. At a minimum you as owner or senior manager must see an accounts receivable aging report each week to see which customers are not paying on time.  Better yet, have a preset weekly meeting with the manager responsible for accounts receivable and come out of the meeting with action steps that need to be taken. Review the results at the next week’s meeting.
  4. Make it a practice to contact any key customer by phone immediately when an invoice is not paid on time. Follow up with a note.  This may sound drastic but if your customer knows to expect the call they will make sure you get paid on time. You may even have to make the call your self.
  5. Don’t let any one customer become too high a % of your overall revenue.  In my opinion, be careful if one client goes over 30% of your total revenue.  If they have financial trouble so could you.
  6. Have late payment fees and late interest charges and use them when you are not paid on time.
  7. Have a good collection agency or collection attorney in place to follow up on seriously delinquent clients.
  8. Whatever you do, get your invoices sent on time— best to have them arrive the same time as your shipment.

There are other suggestions for collecting accounts receivable that I will cover in future posts, but just make sure collecting accounts receivable is a major priority of your management team.  

Don’t be your customer’s bank!

It is your cash and you deserve to have it working for you—- not someone else. 

I would be interested in hearing what strategies you use to collect accounts receivable.

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