Tips on Collecting Receivables
The end of tax season for a CPA firm marks the end of a 90-day sprint and the beginning of what most firms hope to be their biggest cash payoff of the year.
However, many firms get caught in the receivables trap, and what should be a windfall for the firm turns into slow paying clients, accounts receivable headaches and frustrated owners.
Here are some tips to help you collect the money your clients owe. Follow these simple steps and tax season can end with the rich reward that you deserve.
Have sound engagement policies from the start.
- Ensure that all clients are fully aware of your billing practices, finance charges, and billing fees.
- Have new clients sign a payment agreement before you provide any services to them.
- If a client is unable to pay a large bill, get them to sign a written payment plan that specifies how much they owe and how much will be paid each month. Give the client a copy and keep a copy for your records.
Let the banks do the banking services.
- You are not in the business of lending money. Make sure that your billing practices do not encourage people to owe you money. If a client is paying 19% interest on their Visa Card, why should they pay off your bill if you are only charging 12%?
- Accept credit card payments. If clients insist on slow, periodic payments, let them pay their credit cards off in that manner - that's where Visa and MasterCard make their money. Accept their credit cards and get paid up-front. With the advent of cards that offer frequent flier miles or cash back, this should be an attractive payment option for most clients.
Keep in contact with those who owe you money.
- Call people who have missed payments. Unless people receive a written or phone message at least once a month, they will soon forget about the bill. As time goes by, they will either decide they can get away without paying or will be too embarrassed to contact you about their overdue bill.
- Get them to agree to an installment plan if they have no alternative. If they are unable to pay the full amount, get them to pay something (ANYTHING!). A $10 payment toward a $500 bill may not seem worth the effort to you, but it will keep the debt alive in the mind of your client and encourage them to keep paying whatever they can.
Employ the assistance of a collection agency.
To those who feel that a collection agency is an unprofessional approach to take with clients, consider how unprofessional it is for clients not to pay for services you provide.
- You and your staff may not be very good at calling people and getting them to pay overdue bills. You may be uncomfortable asking people for money and may be avoiding making those calls. Don't feel bad about this. You are trained as accountants, advisors, tax preparers and consultants, not money collectors.
- Consider using a collection agency on overdue bills where people have stopped making payments. These are professionals who will likely be a lot more successful than you. Keep in mind, 80% of something is a lot better than nothing.
- Remember that time is of the essence. A bill that is 2 or 3 months overdue has a much higher likelihood of being collected than one that is 6 months old.
- Collection agencies may give you better rates (1) on short term debts rather than ones that are long overdue, and (2) if you promise to give them all of your receivables that are over a specified age.
Act on any threats you make.
- Don't tell clients that you are going to take them to court or turn their account over to a collection agency unless you intend to follow through on what you say. Once you make a statement like that and don't follow through, the client will know you are not serious about the collection process and never pay their bill.
Remember: It's a proven fact that the longer a client goes without paying their bill, the less likely you are to ever get paid. Good luck!
About the author: Michael Platt is the President of AccountingWEB and has consulted with many firms on Practice Management issues. Contact Mike at email@example.com to find out how he may be able to assist your firm.