It may still feel like summer, but the fourth quarter is fast approaching, and if you are like most firms, you are starting to give more serious thought to collecting your accounts receivable. Now is the right time to determine what needs to be addressed going into year-end.
You probably have a number of question marks regarding end-of-the-year collections. Your firm's ability to increase its cash flow and, in turn, increase profitability, cannot be taken for granted. However, the economy and its effect on your clients must be taken into consideration. One way to increase cash flow is to increase the flow of new work. Equally important, however, is to make sure that the firm gets paid for the work it does. Here are a few things that could help:
1. Ensure that firm leadership has the right information and reports – Get your arms around your receivables and payment commitments. Reports should provide good information about which clients are going to pay and when; if clients are not going to pay, and why not; and what needs to be done to keep the ball moving forward. There’s nothing more frustrating than having reports that only provide numbers, without the story behind those numbers.
2. Do not depend too much on historical patterns of bill collections -- Whether or not payment patterns will change may not be determined until year-end and all the checks are accounted for, especially when the economy is causing many clients to adjust their payment patterns. Be realistic about slowdowns in payments. And, to take this one step further….
3. Know your clients -- Understand those that have historically paid their bills at year-end, and try to gauge whether these clients are again anticipating paying in full at year-end. At the same time, know who your new clients are, with whom you will be experiencing year end for the first time. Since you have no history with them, make your best determination whether payment from these clients is on track.
4. Project realistic timeframes for collecting older, more difficult receivables – Don’t underestimate the effect payment of these receivables can make. But collections efforts need to be made sooner rather than later -- which means getting started now, not in December.
The chill that you will feel after Labor Day may be the traditional autumnal trepidation that comes with the need to ratchet up collection efforts in preparation for the last quarter. Are you ready?
For more information on accounts receivable management, check our website -- www.clientci.com
