If You Don’t Get Paid, it’s not a Sale, it’s a Gift

While our tagline “Cash We Help You Get It” might sound like bringing in outside investors or new banking relationships to a company, the most common way to get more cash is to better manage the balance sheet.

The most obvious place is Accounts Receivable. Better management and quicker payments can pay off in the form of increased liquidity and often lower interest payments for companies that rely on a line of credit advances on Accounts Receivable.

I recently had the opportunity to prove this for one of my clients.

Last year, I initiated a project with my client to improve the AR collections process and reduce past due balance.

At the time the project was started, the company routinely had >60 day balances in the 15-18% and was often bumping up against the limits of AR advance rates due to ineligibility of large accounts. This caused cash flow problems as the company is insufficiently capitalized and dependent on AR factoring. My goal was to reduce the >60 balances to 5% or less. The company’s owner wasn’t sure it could be done with their client base.

The project included developing their on-boarding process to set collection expectations with new client before the first invoice went out and to re-set expectations with existing clients. We wrote a credit and collections policy that included a defined series of follow-up calls on past due accounts and an escalation to branch managers who were responsible for managing the client relationship. We set guidelines for turning accounts over to a collection attorney and rigorously set about reconciling old account balances that had been short paid over overlooked.

Within six months, the >60 day balance was at the goal of 5% and as we complete reconciliation and follow-up of some of the old, chronic problems I expect it to improve even more. The company has not had AR advance issues for several months. The company owner is no longer feeling the weekly stress of cash shortages.

All too often, as companies grow, the credit and collection policies become lax. The company takes on too much credit risk, sometimes not realizing the change in a client’s financial profile until too late.

I heard it said, “If you don’t get paid, it’s not a sale, it’s a gift”.

Be diligent about your collection policies. Actively review your accounts receivable practices and you may have more cash than you think.

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