Getting Customers to Pay Faster
Steven Elias and Steve Capper – Flexible Funding - July 21, 2017
Mr. Elias and Mr. Capper are partners of Flexible Funding, a temporary funding firm based In California. They are also CATSS Associate Members
Did you know that for every $100.00 of bad debt you must bill an additional $1,000 of billings? Who wants to work that much harder? No one.
When an invoice you sent out has gone over 45 days unpaid,
your customer is using you as a bank. If you believe you are running a temp agency and not a bank, once again it is time to “dial for dollars”. If you routinely wait 60 days before calling customers for payment, sooner or later you will incur bad debt.
The first step in speeding up your receivables is to call accounts payable and ask if the invoice has been “approved for payment”. For a new customer I always call around the 30th day after the date of the invoice. If accounts payable does not have the invoice, fax it and the time card and call again within two days.
If you have an approved invoice in the Accounts Payable system, ask for a “check date”. If they cannot give you a day on which the check is to be written and it is over 30 days from the invoice date, ask the simple question “Is your company experiencing cash flow problems?” If they say yes, consider pulling your employees. If they say “no”, get their account number from a previous check or from their credit application and call their bank to see if a check for the total amount owed your agency would clear. If it won’t, consider pulling your employees.
When they give you a date for a check, call on that date and say you are sending a courier or give them an overnight UPS or Fed Ex account number. Stop all excuses even if it costs money. If you are dealing with a company who says they “really do intend to pay you someday”, ask for a promissory note with terms that they agree to. You can purchase a promissory note form at any good stationery store. You then have the agreement in writing, which psychologically in the debtor’s mind puts you ahead of other unsecured creditors.
The problem with using a small claims court is that you will win the judgment and still have to collect. But there are other side benefits that cannot be dismissed. Have the Sheriff deliver the papers to the company head. It is embarrassing to have a uniformed law officer at a company front desk asking for an officer of the company to serve papers to. Also, when you win the judgment you may ask the judge for an Order of Examination. This is sent by the court to the company head requesting information on the assets. If the company does not respond, ask the judge for a “bench warrant on the owner or President of the company”. Then, see to it that a copy of the bench warrant is sent to a company head. Surely they will want to clear things up. If not, when the president is stopped for a minor traffic violation he or she will be brought to the police station and detained.
Collection agencies can be of assistance if your own organization does not have anyone to do collecting. You simply submit the account for collection and a multi-stage letter campaign or a direct telephone contact is initiated. If your customer still does not pay, the collection agency will take legal action for you, charging you a fee of 30% to 50% of the amount collected.
The key to speeding up your receivables and avoiding true collection calls or time-consuming collection actions is to courteously and routinely call your clients no later than the 45th day. You are not calling to “hassle for payment” or deal with “problems”. Remember that calling within the first 45 days is to check on the payment status, and at that stage you are dealing with accounts payable personnel who will only perceive your call as “routine”. And because of your call, they will pay you sooner than other vendors. The squeaky wheel always gets the grease.