Getting Paid: How to Handle Accounts Receivable 1

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Reprinted with permission from Janet Attard* Copyright 2004. All rights reserved.
     
What should I do if I don't get paid on time?

If you sell to businesses, call your contact at the company and make sure they got your invoice and that the invoice has been signed off and forwarded to the accounting department for payment. If you sell to consumers, send out a friendly reminder asking if the customer has misplaced or overlooked the bill.

What should I do if the customer says he never received the invoice or that he mailed the check?

Although there are some businesses that will use such ploys to delay payment, occasionally invoices, checks, and mail do get lost or misplaced. As long as the loss is an isolated incident, the best thing to do is give the client the benefit of the doubt. Send a new invoice if the client tells you the invoice has been lost. If accounting says the check has been cut, ask when it was mailed. If the company is local and more than a week has elapsed since the check was supposedly mailed, ask them to put a stop payment on the old check and issue you a new one. If you suspect the company is not being honest about mailing the check, tell them you will stop by in person and pick it up.

What can be done to speed collection?

In some types of businesses there may be nothing you can do except to plan ahead for the delay in payment. This is one reason accountants and experienced business owners warn neophytes not to quit a job to start a business unless they have or can raise enough cash to cover business and living expenses for 6 to 12 months. But for many businesses one or more of these suggestions may help.

• Discuss payment terms before the work is done. Be sure you and the customer are each clear about when payment will be expected.
  
• Ask who should get your invoice when the work is done. It may or may not be the person who assigns you work. If your invoice is misdirected, payment is likely to be delayed.
  
• Put everything in writing. If you don't have a formal contract with your customers, summarize details of any verbal discussions in a letter (commonly called a letter of agreement), and send it to the customer. The letter should include enough details about prices, delivery, and payment to avoid disputes later on about your fee, what you are supposed to do for that fee, when you are supposed to do it, and when and how much you should be paid.
  
• If the customer has the right to accept or reject work, make sure any contracts or letters of agreement specify a time frame within which the customer must make that decision. If you don't, the customer could hang on to your work and/or delay payment for months just by neither accepting nor rejecting what you've delivered.
  
• Consider retainer arrangements with some or all of your customers if it is customary in your field. These can be set up on a per job basis or on a long-term basis. If the retainer gives the customer a certain number of hours of your time each week or month, make sure the contract is worded so that your customer can't "save up" (carry over) unused time. Otherwise you could get stuck with two or more customers each demanding at the same time that you make good on the time you "owe" them and do their projects immediately despite other commitments you have made.
  
• Get part or all of your money up front. If you can't get the entire fee in advance, arrange for progress payments for the balance. Set up the arrangement so you have covered all costs and at least some of your profit before you finish a job or deliver the final product. That way if the company stalls, "loses" the invoice for your final payment, runs into a cash flow problem of its own, or decides not to pay you for any reason, the loss will be minimal.
               

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