With the current struggling economic conditions, the collection of accounts receivable is becoming more and more challenge each day. Strengthening your collection procedures may allow you to shorten the aging days of your accounts receivable and improve collection rates.

The following suggestions can help your business tighten up its credit and collections policies and improve its cash flow.  Although some of the tips discussed here may not be suitable for every business, they can serve as general guidelines to help improve cash flow.

Define Your Policy. It's important to have a clear credit policy.  Your sales force should not be able to sell to customers who are not credit-worthy, or who have become delinquent.  Define and stick to concrete credit guidelines.  You should also clearly delineate what leeway sales people have to vary from these guidelines in attempting to attract customers.

Tip: A system of controls for checking out a potential customer's credit should be in place, and it should be used before an order is shipped.  Further, there should be clear communication between the accounting department and the sales department as to current customers who become delinquent or otherwise contravene credit policy.

Tell Customers About Your Payment and Collection Policy. Communicate your policy to customers.  Invoices should contain clear written information about how much time customers have to pay, and what will happen if they exceed those limits.

Tip: Make sure invoices include a telephone number customers can call or website address customers can access with billing questions and a pre-addressed envelope.

Tip: The faster invoices are sent, the faster you will receive payment.  For most businesses, it's best to send an invoice with a shipment, not afterwards in a separate mailing.

Follow Through On Your Payment and Collection Terms.  If your policy is that late payers will go into collection after 60 days, then you must stick to that policy.  Someone 'not a salesperson' should call all late payers and ask for payment.  Accounts of those who exceed your payment deadlines should be penalized and/or sent into collection, if that is your stated policy.

Train Staff Appropriately.  The person you designate to make calls to delinquent customers must be apprised of the seriousness and professionalism required for the task.  Here is a suggested routine for calls to delinquent payers:

• Become familiar with the account's history and any past and present invoices.

• Call the customer and ask to speak with whoever has the authority to make the payment.

• Demand payment in plain, non-apologetic terms.

• If the customer offers payment, ask for specific dates and terms.  If no payment is offered, tell the customer what the consequences will be to him.

• Take notes on the conversation.

• Make a follow-up call if no payment is received, and refer to the notes taken as to any promised payments.

Contact ECL Consulting, LLC today to schedule your initial consultation with a Business Planning Coach and start building an effective plan for your business!