5 Ways to Collect More of What You’re Owed
Susan owned a successful medical practice serving children. She worked hard and had built a thriving 7-figure practice.
But her margins were down and she didn’t know why.
After looking closely at her financials and talking with her and her staff it became clear that they two biggest culprits were the utilization of her staff (subject for a later article) and a broken collection system in which her professional and support staff were inconsistently capturing and billing the insurance companies for all the services that they had provided the patients.
That’s why we tell our business coaching clients that one of the most important “cash flow commandments” is: “Thou shall collect all that you are owed.”
The first and often most important step to doing this is to accurately track and bill for all the work that you’ve done for your client (be that client a patient in a medical practice, or a customer who walks into your consulting practice or showroom.)
The costs to most small businesses of not collecting money due to them are huge, and only compound as the business grows. If a business is struggling with cash flow, one of the most common causes isn’t lack of sales, it’s poor collections.
Generally, by focusing on this area of a business, an owner can get a 5 to 15 percent boost in his collected gross income within ninety days.
Think about this for a moment. If your business operates at a 33 percent profit margin, then that 5 to 15 percent increase in gross income actually translates into a 15 to 45 percent increase in operating profit.
In Susan’s case it wasn’t about a patient not paying, it was about poor internal systems to capture and code all the services provided accurately which meant that her practice missed out on asking for over 5% of its total billings. That 5% equated to them losing over 20% of the operating profit for the practice!
Despite what you might think, most people just want to do the right thing. Your customers are not trying to avoid paying you—you just didn’t bill them.
Or maybe in your business the issue isn’t that you aren’t invoicing your clients accurately, but you are struggling to get them to pay you what they owe.
Remember, the only thing worse than not making the sale is making the sale, but not getting paid. After all, the moment you make the sale you now have your cost of goods sold, any sales commissions you’re paying, and other expenses. If you don’t collect on what you’re owed, the sale is a negative drain on your company’s cash flow.
Here are 5 specific suggestions to help you collect more of what you are owed:
- How accurately do you track who owes what?
As was the case for Susan, many collections issues aren’t about poor practices in asking for the money, they are about poor operational systems to track what money is actually owed, and where you stand in collecting that money.
- Invoice more frequently.
Asking for more frequent payments means that the amount of payment is smaller and therefore easier for your customer to pay.
It establishes a professional pattern of asking for and getting the money you’re owed.
Furthermore, by invoicing more frequently you get the added benefit of a steady stream of income for your own cash management, instead of struggling along between each large payment over time.
- Compress the timeline.
If you have to escalate your collections efforts, compress the timeline.
Don’t let slow-paying customers stretch out payment for another sixty to ninety days.
Front load your collections efforts. The faster you move to collect, the higher your odds of getting paid.
- Assign the right person to collections.
Be smart about the people you task with asking for payment. By default, most companies assign their bookkeepers or controllers to ask for payment. But these people tend to have weak interpersonal skills.
Instead, consider involving a mix of people in your business to collect what’s owed.
For example, when the receivable is fresh, ask your sales team to make collection calls. Because many of them are compensated on a commission basis, they have a strong financial incentive to help you collect on the sales they make.
Also, paying salespeople when money is actually collected, as opposed to paying them the day a customer just says yes, is a smart way to keep salespeople vested in the collections process.
- Pay attention!
As simple as it seems, just paying close attention to your A/R reporting on a weekly basis helps your business collect thousands of dollars more of the money it’s owed.
The result? Increases to your cash flow and better effective operating margins for your business.
For more ideas on growing your business, including a free tool kit with 21 in-depth video trainings to help you scale your business and get your life back, click here.