18th Jan 2010
January 17, 2010
Ever wonder what happens to the invoices you send? How do they get into the client’s payables system? How does the client’s payables process begin? When will you get paid?
All these questions should be answered even before the billing occurs by asking these questions as a normal part of the closing process. All of this is referred to as the “Cash Cycle”. The question most commonly asked about the cash cycle is, “just how fast will our accounts receivable be collected?” This is an important question as cash is the backbone of any successful business.
Keys to successful cash management are:
● Understand the client’s payables system and negotiate your agreement with their system in mind.
● Contract your billings accordingly, if your billings are held under a borrowing base agreement.
● Maintain clear, up-to-date contact information for the collection team. Know who you will call in specific circumstances. With HR turnover as volatile as ever, it’s a good idea to trade general contact numbers with the person that signs the contract. This could save you hours of research.
● Begin follow-up calls by your AR/Collections team 5 days after the due date. This will insure the invoice has been entered into the payables queue. Use this time to ask questions. How fast is their payable turnover? Can you be paid using EFT methods? What is the approval process?
● Institute a late fee into your invoicing. Late fees may not be the best way to build a rapport with your clients, but many clientswill have instituted similar fees on their own invoicing.
These are just a few key methods to increase the velocity of your cash receipts or, at least, gain a better understanding of your client’s process. These strategies will take the guesswork out of collecting receivables and put you in control of your cash flow metrics.