One of the five key business areas we focus on with accounting firms is that of Optimizing Processes. It’s a critically important area, as many accountants find that until they ‘fix their firm’, it is practically impossible to gain capacity and grow revenue. Within the area of Optimizing Processes, you might work on planning (including defining a strategic plan, setting tactical projects with targets and measuring your progress against those targets), finance controls, finance reporting (my Dad, a career banker, once told me that accountants were the world’s worst at looking after their own money!), general operations and collections.
In this blog, I am focusing on collections because unfortunately, it’s an area where many accounting firms struggle. Just recently, I was facilitating a full-day workshop for a group of international firms, several of whom were struggling with cash flow. I asked them what their terms of trade were. They all replied that they told their clients they expected payment either within 7 days or 14 days. Yet the average days in receivables in the group was much higher than that. Why does this occur?
In my observation, it’s because accountants do not enforce processes to ensure that they are paid on time. They often worry about what the client might say, seemingly oblivious to the fact that every other supplier or vendor to that client is chasing money like there’s no tomorrow. When you’re the only one that isn’t...well, you can figure out the result.
Here are 11 ideas that can help you to improve your collections:
- Get tough – you are not a bank or a charity! You know, your clients might actually respect your business advisory capabilities more if you ‘walked the talk’ in your own business
- Explain your terms of trade clearly up front. In most cases, you have a duty to provide the client with a formal letter of engagement; instead of burying your required payment terms in the small print, gain agreement to them from the client before you start working
- Ask for payment upfront before you start the work (many other vendors do this - why shouldn’t yo
- If you’re struggling with idea #3, hand the client their invoice at the final interview – you might be surprised when some ask if you accept credit cards so that they can settle the invoice before they leave your office
- Have multiple payment options - accept everything, including American Express, which many clients like because they get favorable frequent flyer points! I’d rather have 97% of my money in the bank today instead of chasing for those extra percentage points in 90 days’ time
- Eliminate columns on statements (30, 60, 90-day columns do nothing but suggest to the client that they are welcome to choose which column suits them best!)
- when they are supposed to pay, they might just schedule the payment online)
- Use a direct debit authority so that you are in control, rather than the client
- Have a receivables system and a receivables champion - someone who actually enjoys chasing down money and has no emotional connection with the client
- Give a fixed price when you start the job. A major contributor to slow payment is frustration on the client’s end at a surprise bill after the work has been completed
- Improve turnaround time and client service. Excellent service usually results in quicker payment.
ABOUT THE AUTHOR
Director & Co-founder at PANALITIX
Colin is a Chartered Accountant who, having spent almost 10 years with one of the fastest growing and most innovative firms in the UK, has since invested over 20 years helping business owners to improve their businesses with a focus on attracting new clients, better managing existing clients, developing new products, building an engaged team and strengthening internal business processes.
Colin's primary focus at PANALITIX is on product development and business improvement content. He is the author of the bestselling book “Accountants: The Natural Trusted Advisors".