Introduction

In this challenging economy some customers will delay payment for as long as they possibly can do so. Your task is to apply pressure without creating any friction. Collections management is a fundamental part of Customer Relationship Management and you must apply pressure in line with a formal strategy rather than just trying to be tough on every customer.

Cash flow drives every business. If you cannot turn an invoice into cash in a timely manner, then you are going to have to find an alternate source of cash to fund your operations.

A modest 3-day reduction in receivables for a $10 million firm will generate a cash flow of $82,000. The potential speaks for itself. The question now becomes one of strategy and tactics.

Step 1: Remove all Impediments to Payment

If there is something wrong with your internal invoicing process, your first step must be the elimination of any impediment to payment your own activities might create.

• Ship/provide acceptable products and services.
• Make sure the invoice format is acceptable.
• Bill what you quote.
• Include appropriate documentation.
• Reduce the time it takes to create and send invoices.
• Make sure you have the correct Bill-To information.
• If a customer requires additional invoice copies, send them.
• Send interim bills whenever possible.
• Transmit invoices electronically or use priority mail for high value invoices.
• Resolve product/service disputes immediately.

Step 2: Implement an Appropriate Strategy

You have to decide when to contact customers and more importantly what approach you are going to use. If you start the process too soon, you might negatively affect the relationship you have with your best customers. If you wait too long, you may be investing funds that are desperately needs elsewhere.

• Extend credit (time) to your best (most profitable) customers.
• Contact habitually late customers sooner.
• The underlying objective of any collections strategy is changing a customer’s payment behavior. If you do nothing to change this behavior, then you just perpetuate the problem.
• Make sure management and your sales team buys into your strategies.
• All collections activities should be an integral part of your larger customer relationship management (CRM) strategy.
• Make sure employees understand how they should conduct themselves.
• Devise management oversight procedures.

Step 3: Adopt Effective Tactics

Having devised an overall strategy and enlisted organizational support, what should you do specifically to achieve these objectives?

• Keep in mind the fact that each time you touch a customer there is a cost associated with that contact. Your overall objective is to optimize the cost per dollar collected.
• Statements and dunning notices are low cost touches as long as customers respond. For those that do not respond (track each customer’s response rate to these initial touches), a phone call may be the best first contact.
• Dunning notices should list each invoice, the total outstanding and an expected pay date.
• Don’t use the same trigger point (e.g. 60 days overdue) for all customers. Good customers who pay their bills on time and generate substantial gross margin should be contacted less than customers who are less “profitable”.
• Try to adopt a positive approach until it become quite clear that a more forceful attitude is required.
• If possible always contact the same person.
• If there is some impediment to payment, take immediate steps to resolve this issue.
• Don’t be afraid to ask for payment 7 – 14 days sooner. Most of your customers are using some form of accounting software and it’s likely that they are setting payment terms within AP.
• There is no incentive for the customer to do anything unless you ask for an action (invoice approval, payment, etc.) by a specific date and follow up accordingly.
• Follow up immediately via e-mail (action to be taken, date promised, call back date).
• In some instances a forceful attitude is the only language people understand.
• Monitor payment history (Average Days Late not Average Days to Pay) and be ready to react swiftly.
• Encourage prompt payment in the future by saying “Thank You”.

Summary

AR can be reduced, sometimes significantly. Rather than applying the exact same tactics for all customers, determine how you are going to handle each customer, but always remember that collections management is an integral part of customer relationship management. Your actions must help your firm manage receivables effectively as well as support your firm’s sales objectives.

The Collections Management Solution for Dynamics NAV

The AR Collections Manager for Dynamics NAV (http://www.dynamicsnavaddons.com) incorporates many of the tactics discussed in this article. At its core this powerful tool is a highly specialized contact manager that assists firms organize and execute the collections process. If you are a Dynamics NAV reseller, user or prospect, you should contact Bob Coles at (407)260-0834 or bob.cole@dynamicsnavaddons.com.