7 Accounts Receivable Strategies
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Now, let’s get into today’s situation………………..
“Getting Paid: New Directions in AR” From The Catholic CEO
This topic flows directly from current experiences as a business mentor in challenging times.
The main point of this commentary: Business leaders ought to upgrade accounts receivable (AR) skills. It’s a growing problem now.
Lenders tell tales of poor AR practices. Bankers lament that it is the most ignored trouble signal and often the easiest to solve. Owners fear the topic.
What do effective leaders do about AR?
- KNOW YOUR CUSTOMERS: Segment the customer list in declining order of revenue. Identify which 5 customers produce the highest revenue. Get close to them. Understand their cash flow. Know their collection problems. Have a special meeting to talk about this. Do this at the beginning of the relationship. Create expectations. Reduce their fear of “late pay” syndrome.
- DEFLECT AVOIDANCE ISSUES: When you see customers slipping into “late pay” mode, create an “It’s okay to talk about it” model rather than simply accepting the old “Let’s avoid the topic” model. It really works.
- ENGAGE IN TRUTH TALK: Conduct “microscopic truth” conversations with your customer. Discuss expectations in advance. Explain your cash flow challenges. Learn their challenges. Don’t just post terms on your invoices. Discuss why you expect payment in “x” days. Reach an understanding about the reality you each face. This can result in a new level of candour useful for both businesses and their lenders.
- DISCOUNT MORE: Discount more creatively than you did in the past. One percent for early or on-time inspires no one. Occasionally offer, say, 7.5% for payment within 48 hours, especially on red-zone or large accounts. Getting 92.5% of your money in a tough economy on a quick basis is amazing.
- GET REAL-TIME DATA: Monitor your receivables WAY more than in past times. Learn to speak the language of DSO (Days sales outstanding) and DPO (Days payables outstanding). Get a daily dashboard report on AR. Ensure you get signals sooner.
- ENGAGE WAY EARLIER: Direct your AR professional to talk to the customer as soon as the invoice is sent. Engage in a friendly conversation about how it looks for payment and timing. Get signals ahead of time. Start talking as the invoice is issued, not at red-zone danger time.
- TEACH THE “ART OF AR”: Pay attention to how your AR professional communicates. Most are poorly trained. Really teach how a relationship AR conversation works. Give your AR pro true skills in comfortably speaking about AR. Simulate. Practice. Teach skills. Build confidence. Learn the new way to do AR.
CONCLUSION: The current AR scene is rudely teaching businesses to be more creative, pay more attention, and create a new style of dialogue about collecting money. Call The Catholic CEO to review ideas on increasing your ”AR satisfaction”.
This is The Catholic CEO, Henry Kutarna.
Next week: More action on our family business case study. Coming soon: A Workshop on Pitching for Capital.