Collecting Accounts Receivable is one of those jobs that no one wants, but it's a necessary part of doing business. Anyone running a business knows that if you don't get paid, you can't pay your employees or vendors, and that's not good. So you have to keep track of who owes you what and keep the money flowing in.
When you make a sale, you either collect the money at the point of sale, or you extend credit.
If you extend credit, and thereby incur an Accounts Receivable, you agree to collect your money at some date in the future. That date is based on your "terms" of Net 30 (30 days) or Net 10 (10 days) or Due Upon Receipt (as soon as you get my invoice in the mail).
Now, in the world of small business bookkeeping, if everything worked like we wanted it to, our customers would send their payments in before the due date and everything would be great. We would not have to deal with collecting Accounts Receivable. But that often doesn't happen.
Do you have trouble getting paid on time?
Just about anyone who has worked in small business bookkeeping knows the bind you can easily get into if your customers start lagging in making payments.
You have bills to pay, too, and you need your customers to pay you so you can turn around and pay your own bills timely.
I have a process for collecting Accounts Receivable that I use that works pretty well. Depending on your type of business, this may not work, but try it, or tweak it to work for you.
This process for collecting account receivables involves some type of calendar reminder system. You can use your Outlook or other computer calendar system, or you can use your Daybook or Planner just as easily.
It also requires 2 Dunning Letters - another accounting term for collections letters. The first will be a Reminder Notice, and the second will be a Past Due Notice.
In place of actual letters, you can just write messages on a copy of the invoice, or make up short notes on colored paper which you can staple to a copy of the invoice.
Lots of options, here.
First I'll go thru the process, then I'll discuss what should be in those letters or notes.
**before you mail out your invoice to the customer, make a note in your calendar (be it your computer or your daybook) on the day the invoice is due. Say something like Tanner invoice due.
**when that day comes, you see the note in your calendar. Look in your Cash Receipts Journal for a payment from Tanner.
**If you see the payment, Great! Cross off the note and you're done. If there is no payment yet, send another invoice with a note reminding the customer he hasn't paid yet, or send Dunning Letter number 1 (Reminder Notice).
**Before you mail that 2nd invoice or Letter #1, make another note in your calendar 10 days from today. Say something like Tanner invoice reminder.
**In 10 days you see that note in your calendar. Again, look in your Cash Receipts Journal for that payment.
**If no payment, send a 3rd copy of that invoice with a note that the account is now past due. Make it obvious. Or send Dunning Letter #2.
**You got it, put another note in your calendar, Tanner invoice past due. If you prefer direct contact, you could call the customer at this point. However, I usually make the call when the Past Due Notice has had 10 days to illicit payment for me.
**The next 10 days go by, you see the note in your calendar, you look for a payment. If this process has failed to get payment, which in a few circumstances it will fail, this necessitates a call to the customer. At this point ask what you can do to help, is anything wrong, you need to get paid.
**Worse case scenario...the customer refuses to talk to you. You may want to think about having a collection attorney available. Don't wait 3 years to try and get paid. If there is no contact from the customer, contact your attorney for help.
So, what should be in those letters or notes?
The first step in collecting Accounts Receivable is the Reminder Notice.
One option is to pre-print small notes (like a half page) that you can just staple to a copy of your invoice. You could print those out on a color sheet of paper so it stands out, too.
Say something like:
It has come to our attention that we have not yet received payment on this invoice. We hope there's nothing wrong. If there are any problems, please call our office today. If you have already sent your payment, thank you and please disregard this notice. If you have not yet sent payment, please send it today. Thank you for your business and we hope to continue serving you in the future.
If you are printing out an entire letter, use your stationary or make one up on your computer (company name and address centered at the top). Address it to the customer, use the above notice as the body of the letter, sign and date. Include a copy of the invoice, marked copy.
The second step in collecting Accounts Receivable is the Past Due Notice. And/or a phone call.
This is the trickiest letter to write. You don't want to get personal, you want to keep on good terms with the customer to try and get them to pay and still be a good customer. Things happen, and they may want to pay, but for whatever reason, can't.
Try to help.
For the note, try something like:
This invoice is now Past Due. We have contacted you previously, and have not heard from you. If there is a problem, we'd like to help. Please call the office today, and speak to our customer service representative, so we can get this resolved.
Our next step is to contact our Collection Attorney, and we hate to do that to a valued customer.
Please call the office or send payment today. We need to hear from you.
If you are doing the Dunning Letters, again, use this as the body of your letter.
If you are doing letters, keep a copy of each type saved. That way you can just add the customers name and address and you're good to go.
If you're doing the notes, print out several of each, and attach to invoice copies as needed.
Hopefully this process for collecting Accounts Receivable leads us to our goal, a paid invoice!
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