Aging Receivables

Aging Receivables have been coming up recently… I don’t know whether it’s the downturn in the economy, or whether the small businesses I work in care more about every dollar once I get here. However, let’s talk a bit about aging receivables, what they mean, and how to get less of them…

Aging Receivables refers to invoices businesses have sent to clients that remain unpaid. They age in days, and more than 90 days aged becomes a red flag for increase aggressiveness needed in collections. When they age more than a year, it’s time to get crazy, and if they age more than 2 years, they often become uncollectible. Fisher Business Management focuses a lot of energy when consulting in small businesses on the aging receivables between 90 days and 2 years, as we often “raise” the funds needed to pay for us, while we work on the entire operation. Most of those under 90 days are needed to keep a small business going from day to day

How to get fewer aging receivables

Collect upon receipt or delivery of your product.

This seems obvious, and it is. It’s often easy. When I have clients that perform service calls, it’s a small change in process to begin collecting money from end users (when they work with consumers) on the spot. We can call credit card payments back into the office, or bring a check back to the office

Make your invoice stand out.

Pink (or orange) paper costs $5/ ream, and stands out in the bills. Especially for 2nd or 3rd notices. Keep yours from getting lost in the sea of white paper on the accounting desk

Send a process letter with old invoice or statement reprints.

If they are going to go to collections soon, let them know! Most people don’t want a bad credit mark.

Don’t be afraid of the court system!

I have recently been doing more with a process server and small claims court. In Oregon, the process is not complicated, and is made easier with a good process server. Any fees incurred in the collection *can* be added to the judgement total. Be aware – language is important here

Lessons of the road:

  • Get a contract signed
  • Have a milestone that acknowledges completion; a signature, permit closing etc
  • Document any collection process you do or have. Email counts!
  • Don’t make a deal verbally just to get money. The new ‘verbal contract’ will overwrite the old one in court.
  • Be systematic, so it is not personal coming from you, and all of it gets easier

About the Author Barb Fisher

Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).

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