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Tips for successfully collecting accounts receivable.

Whether you are starting up a business or have been established for years, perfecting your skills at collecting accounts receivable is key to your success -- especially in tough economic times.

One of the most effective tools at your disposal when it comes to encouraging payment from customers is your attitude. Business owners who are good at collecting accounts receivable actually enjoy the task. They like keeping their business running smoothly and they enjoy the opportunity to talk with their clients.

Having the right attitude, however, is not enough. A few tried-and-true techniques also help the collection process along. The first is to strike quickly. Once your work for a client is completed or your goods have been delivered, send out the bill immediately while the value of your service is fresh in the client's mind. Your best chance of collecting payment is in the first 30 days. After that, the longer the bill remains unpaid, the more difficult it can become to collect.

Make sure your invoices are accurate since errors provide an excuse not to pay until matters are straightened out. Don't hesitate to indicate that interest will be charged on late payments. This encourages customers to pay on time and reminds them that it costs you money to carry their overdue accounts.

Dedicate one person in your company to collecting accounts receivable on a monthly basis. If your business is small, that person should be you. While you should organize a system for sending customers monthly statements, it is also important to use the telephone for follow-up on accounts due. People are more likely to respond to a personal request than a printed one.

And you can use your phone call to turn a problem into an opportunity. Talking with your customers will help you decide whether to extend them further credit or cut their credit or, perhaps, have them begin to pay on a COD basis. By listening to your customers you will also find out if they have any complaints or ideas that will help you.

If you have aging bad accounts, follow them up quarterly and resolve to do something about them. After all, the bank is not likely to give you credit on accounts receivable that are over 90 days old. Consider cutting off your slow-paying or non-paying customer, giving the account to a collection agency or suing for payment. If you write off an account, don't forget to make the proper claims to get your GST and retail sales tax back.

If a client goes bankrupt, you are allowed, under the new Bankruptcy Act, to take back any goods sold to him in the 30 days before he went into receivership or declared bankruptcy. Keep your ear to the ground -- suppliers are often the last to know.

Moneycare is general financial advice by Canada's chartered accounts. Don Atwell is a partner with Collins Barrow.
COPYRIGHT 1993 Canadian Institute of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Moneycare
Author:Atwell, Don
Publication:Canadian Manager
Date:Jun 22, 1993
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