Collecting your Due
by Jim Bellinghausen
A successful program begins with knowing your clients’ financial positions and their internal payment processes.
Credit checks for new clients through Dun & Bradstreet, Credit Risk Monitor or other online sources provide some indication of a prospective client’s ability to pay. It’s equally important and good practice to periodically update the credit status of existing clients.
Avoid over-extending credit to a client by setting internal credit limits based on your estimated monthly billings and an objective asses- sment of their creditworthiness. Where you have concerns about a client’s financial strength, negotiate prepayment or cash on delivery (COD) terms.
Just because you have a net 30-day payment agreement, it doesn’t guarantee payment. Once a contractual commitment is in place or an un- derstanding with the client regarding billing terms, you need to effectively navigate your client’s accounts payable process. Often clients and vendors have unique requirements, sometimes related to bookkeeping accuracy and completeness of billing information.
Make sure you have the right contact person [and possibly a secondary contact], client billing location, a purchase authorization number and other information your client needs to approve and process your invoice. Don’t provide an easy excuse for your client to set your invoice aside and delay your payment.
At larger companies [be it a client or vendor], your client contact may not be familiar with their own accounts payable department requirements. It is good practice with new clients to have your billing coordinator confirm the specific needs of the client’s accounts payable department.
If a given project involves significant up-front investment, negotiate advance billing and payment terms so you can better match cash receipts to cover payments to third-party vendors that have been secured to enable you to deliver. While it might seem obvious, you can’t collect what you don’t bill. This is especially important for service businesses. A busy, smaller service provider might fall into the “I’ll get to the billing next week” trap. Changing that mindset within your organization is significant; establish a billing process and timetable and stick with it.
Make sure your sales and account reps are aware of any past due invoices. The longer an invoice is allowed to age, the greater the opportunity for changes in client personnel who may not be aware of payment arrangement, purchase orders being closed or unplanned budget reductions, possibly resulting in delayed payments or uncomfortable situations.
Effective follow-up can dif-fer from client to client. While email might be most efficient for some, others may prefer a phone call or a personal visit. Don’t be shy in asking for specifics such as when can you expect payment, where the payment is in the accounts payable process, are further approvals needed, the check number, etc. Sending monthly statements of open invoices is also appropriate.
If you know your client is disputing a balance or has questions regarding the quality of the product or service, address it immediately. Some-times a client will withhold a large payment to draw attention to a smaller, yet important issue they want resolved.
Some other effective means of improving collection is to negotiate payments via wire transfer or Automated Clearing House [ACH]. Electronic payment from the client will typically speed up
the collection process. In addition, your use of a bank lock-box arrangement will provide quicker access to customer receipts.
If a client is experiencing financial difficulty [due to no fault of your own] and it’s affecting their ability to satisfy financial obligations to your firm, attempt to establish a payment plan. Receiving installment payments over time is better than receiving no payment at all—especially now. 
Return to Ingram's March 2009
Jim Bellinghausen Chief Financial Officer, VML
P | 816.218.6025
E | jbellinghausen@vml.com