Proactive receivables management

Receivables are critical to cash flow management and accelerating receivables means increased, improved cash flow.

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Published: February 01, 2010

Receivables are critical to cash flow management and accelerating receivables means increased, improved cash flow. “The bottom line is that you can’t survive without cash, so the faster you get your invoices paid, the better prepared you are to handle your bills and any unexpected expenses,” says Hal Schaeffer, who heads D&H Credit Services, Inc.

"Depending on the terms you've extended, follow up within 10 days minimum of what your terms are."

Schaeffer calls the tactics around accelerating receivables “dollars and sense” techniques designed to “get the money in as fast as you can—that’s the name of the game.” His suggested methods include:

  • Avoid the “big sin” — “If you’re only billing once a week or once a month, that’s a big business sin,” he says. “If you can do it, bill daily. If you think it’s a pain, just remember that the sooner you get that invoice out—immediately after your products or services are sold—the sooner you get paid.”

  • Develop a credit application — A lot of small companies don’t use these instruments, but think of it as a protective measure, especially if you do a lot of business-to-business (B2B) work or want to offer credit to good customers. Even if you ask questions about how long a company has been in business and request references without doing a full-blown credit investigation, it shows the customer that you’re savvy regarding credit issues.

  • Accept credit cards — Again, this is something you might not have previously considered if you’re doing B2B work, but it’s becoming more common. You’ll pay a bit more (AMEX, for example, can cost as much as 3% of your billing), but you’ll have your money within a couple of business days.

  • Get paid via ACH — If you’re working with larger corporate accounts, request that they pay you through Automated Clearinghouse (ACH), a national funds transfer system that offers next-day funds, deposited directly to your checking account.

  • Get a purchase order (PO) — If anyone is going to ask for your work, get it in writing. A PO can help protect you by clearly setting out the parameters of the work to be done and detailing when payment is due. “They’re especially common in the retail world,” explains Schaeffer. “Just be careful. If you can’t comply with the PO to the letter, you might get tagged with large deductions. If you can’t comply with it, don’t accept the PO.”

"You should never be bashful about asking to be paid. If you’ve sold services or goods in good faith, ask for that money. Depending on the terms you’ve extended, follow up within 10 days minimum of what your terms are,” advises Schaeffer. “Above all, get your bills out fast, don’t sit on them, or you’ll find yourself cash-free in a hurry.”

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