Tools for managing accounts receivable – a mindset change from “collecting” to “expediting”

Most people think about managing accounts receivable or collecting as being a hard-nosed, demanding approach to making someone pay.

It’s natural to think about the role of turning your receivables into cash as one of “collections”. You have to “collect” what you are owed. Makes sense, right?

So the person charged with the responsibility for collecting must be the “collector”. That person or department then goes about their job of collecting receivables from customers.

But that is only productive with certain types of receivables.

If you collect from individuals on credit card debts, student loans, or other consumer debt, then you are more likely to have to use the traditional “pay the bill or else” approach to collections.

But if your receivables are with other businesses (especially if those businesses are much larger than you), you would be wise to modify your approach to getting paid.

Sometimes the best way to improve a process… is to change how you think about that process.

Think “Expediting” Rather Than “Collecting”

One concept I have found to be very effective in my consulting work is to shift the focus from “collecting” to “expediting”.

It’s a mindset shift that you have to teach to your team/staff. At first it will sound to them like a small distinction… but it isn’t. It can be a real game changer.

Here’s some of the benefits:

1. It’s easier (and feels better) for the people calling customers to get payment
2. It feels better to customers too (pissing off customers is a big risk when “collecting”). They don’t feel like your company is beating them up. It’s a more respectable process all around.
3. It will help you drive DSO down (by getting paid on time). The result is more cash in the bank (and fewer bad debts).
4. It will free up your time because you won’t have to constantly ride your team to speed up the payment process
5. You will build a stronger and deeper relationship with your customer

Here’s How to Get Started

We’re going to use Stephen Covey’s advice and “begin with the end in mind”.

Our goal is to get paid. And since we are not going to be “collecting”, we have to shift our focus to “expediting” the invoice though your customer’s process and ultimately to the point where we get paid.

To accomplish that, we have to understand how an invoice flows through the customer’s process from beginning to end. In essence, we have to think like the customer.

We get to use more of Stephen Covey’s wisdom here because we need to “seek first to understand, then to be understood”.

If our customer is a one man operation, then it’s easy. We have to find out exactly how and where he wants the invoice delivered. And we know exactly who to call to find out the status of the payment.

If our customer is a Fortune 100 company, then it is a bit more complicated.

The people placing orders are probably scattered across the country… there may be multiple approvals required… and the accounts payable department may be in a different part of the country than the person or division that ordered from us.

They likely have a workflow software system with very specific criteria for the invoice to move through the process and ultimately get paid.

Here’s the cool part. We can learn how our customer’s payment processing system works while at the same time making the customer feel good about us and speeding up their payments to us.

Selling to Large Companies

Let’s look at an example from my consulting work so you can see how it all works together so nicely.

My focus on changing the mindset from collecting to expediting came when a company I worked with was struggling to get paid by some of its larger customers.

About 30% of revenues were to a relatively small number of reputable, large companies.

My client was relatively small at about $15 million in annual revenues.

The large customers were billion dollar companies. Those customers were very important AND hard to collect from.

Cash was tight so keeping the DSO in line was critical.

I interviewed the client staff and quickly got a sense for how they were trying to collect those invoices - and why a shift in mindset and approach was needed.

Here’s How It Works

Here’s an example of how we did it with one large customer in particular.

The customer (I’ll call them Big Fish) was greater than 10% of revenues and VERY slow to pay. And getting slower. My client was struggling to find a way to fix the problem but it only seemed to be getting worse as each month went by.

Big Fish had a number of divisions making purchases. Each one was invoiced in a different way and the invoice was sent to different places.

We kicked off the new “expediting” approach with a call to several of the buyers and key contacts at Big Fish.

We started the call by saying we had a feeling we were not doing a good job in the way we invoiced the various divisions because their receivables had begun to age and payments appeared to be slowing down.

As a result, we had been making more calls to their accounting department and more calls to them to help us track down payments on forty or more invoices.

We basically set the stage that we considered the problem to be on our end and we wanted to help them by finding out what we could do better in the invoicing process so we did not add to their workload.

So our first step was to learn THEIR process for receiving, approving, and paying invoices.

Sounds like common sense right?

But we learned in the first few minutes of the call that there were two divisions where we were sending invoices to the wrong person. And they would be processed faster if we sent them by email rather than by mail (which we previously thought was how they wanted/required them).

They also introduced us to the person in the Accounts Payable department that we could contact anytime we wanted to see how various invoices were progressing through their system.

She had access to the workflow system and could quickly see if there was a problem with an invoice.

We Created an Even Stronger Bond with Our Customer

The cool thing about this approach is the customer appreciated our care and concern. They appreciated the fact that we wanted to make things easier on their end.

And because they were not out to create problems with our accounts receivable, they put a renewed focus on helping us solve the problem. It wouldn’t have happened that way if we tried the traditional approach of just beating on them to pay in accordance with our terms.

They were a huge company and we were small. Trying to flex our muscles was not the ticket to getting paid in that situation.

Put Your Teacher Hat On

Remember, you have to teach your staff how to do this properly.

And once you do, you will find it much easier to get paid from those customers who are much bigger than you are.

And you will be making your relationship with that customer stronger in the process.

That’s a big time win-win.

Go for it!