April 28, 2014
Collections: The Forgotten Revenue Maximization Lever

Unless you’re a rare breed, collections can be one of the most boring things for your business. Few want to sit around all day talking about billing and accounts receivables (for the most part)? 

At least that’s what I thought when our ratio of receivables to cash in the bank crossed the 2:1 mark. I’m not sure what’s the appropriate ratio here and research on the interwebs doesn’t turn up much in terms of best practices, but when looking at those numbers, I knew there was a lot we could’ve done if that cash was in the bank right now, not when the folks who owed us decided to pay their bills. 

collectionscat

It’s not that they didn’t want to pay us, there was just no expediency. To increase our cash velocity, here are a few things we did to flip that ratio on it’s head to get the cash necessary to keep things moving.  

Some Cash Up Front and Stop Work If It’s Not Paid

We’ve had a few really bad experiences with folks not paying their bills. For one, we found ourselves in a situation where we did a bunch of work for a company, they then stalled and ran low on cash, and we weren’t paid for months. Not good for us and a rookie move on our parts. To turn this around though, we now charge 15-20% up front depending on the size of the contract with net-15 terms. If they don’t pay up, we send the following note to our point of contact: 

Hey [Contact],

I know it’s not your department, but our controller is a real stickler for making sure we’re not working if the initial invoice hasn’t been paid. Could you check in to the status of that invoice? Feel free to give us their contact information and we can follow up directly, too. We know you’re busy and we want to keep moving. 

[Price Intelligently Contact]

Our controller isn’t that scary (well, maybe a little), but 100% of the time this has taken care of the issue, because folks just bump it up on their to-do list with a quick email. We also found citing a “bad guy” (or gal in our case) works well, because it takes the person working with the customer out of the mix. Their hands are tied by another member of the company, which means the relationship isn’t impacted. Plus, being nice here and offering to take the issue of their hands is a huge bonus that lots of folks really enjoy.

Fortunately with this tactic, we haven’t had to “stop work” yet, but be prepared to do so if needed. People should pay their bills and this also makes sure you’re not doing more work with the chance of not getting paid at all, which increases substantially after the first invoice. 

Late fees, especially on the final contract

All contracts you sign for work should have a late fee clause. It doesn’t have to be big or scary, but just having it allows you to push for expediency if someone is lolly gagging with their payables department. We were being too nice in the beginning by constantly sending the “any word on that invoice” emails to our points of contact. Today, if someone is late on their invoice, we now have our controller send this email directly (this typically comes after a few "check in" emails):

Hi [Contact], 

I just wanted to check in again, as I haven't heard anything yet and we haven't received payment. I understand things can get muddled with everything going on.

Just to be clear though, per our Terms & Conditions of the contract, late invoices are charged X.X% per month late and this invoice was due on [DATE].  Hopefully, we can clear this up soon so there won't be a need to reissue the invoice to include the late fee.  

Let us know, and thanks for your help with this!

Best,

[PI Contact]

This works wonders, because even though the late fee may not be much, if the invoice needs to be re-issued with the late fee, a lot of people get in trouble, including our point of contact. That’s not our intent of course, but inevitably we get an email from our POC with the payables person copied and we have the check within a few days. 

Be Nice, but be firm

The big lesson here is not to assume they aren’t trying to pay. A lot of times it’s just a priority issue. If you’re nice, but firm, you will always have the upper hand. They signed a contract, after all. Fortunately, we haven’t had to go much beyond a few email reminders. We’ve re-issued a few invoices with late fees, but then immediately get a check overnighted or wired to us. 

To learn more about revenue optimization and pricing strategy, check out our Developing Your Pricing Strategy ebook or our Study of the Top 270 SaaS Pricing Pages.

New Call-to-Action

Founder & CEO, ProfitWell
comments powered by Disqus