Unclogging accounts receivables

There is a common complaint among business owners in the U.S: accounts receivable problems are causing cash flow to stall. There are a number of ways to unlock the cash from receivables and put it to use in other parts of your business. Here's what to do if you find yourself in any of the following hypothetical situations.

My services business is growing fast. Income statements show a profit every month, but I never seem to have enough money to make payroll. Why is that?
It sounds like you have a collections problem. The profit showing on your income statement is not being paid by your customers quickly enough to generate real cash. Meanwhile, big expenses like payroll can't wait. It's a very common problem, particularly when you're hiring new staff to serve new clients.

Try this: Offer your clients different payment terms or methods. Allow your customers to pay by credit card, rather than by sending a check. You get your cash faster, and the customer can take as long as he needs to pay his credit card bill. If you are lucky enough to have repeat customers, offer a small discount for pre-payment. Getting paid in advance for your services will turn your cash problem upside down.

I sell materials to manufacturers all over the country. By the time I make an invoice, mail it and get their check back in the mail, more than 50 days have passed. I'd rather have that money in the bank earning interest. What can I do?
Common accounting software packages, like QuickBooks, now offer electronic presentation and collections. QuickBooks will convert your invoices to Adobe PDF format, send them by e-mail and help you collect payment via credit card or online service. You can turn an invoice around in five minutes instead of 50 days. But before you can expect customers to pay that quickly, let them know what you expect. It helps to negotiate specific terms, including interest charges for late payers.

My clients are Fortune 100 retailers with huge clout. When it comes to payments, they name their own terms. I love my customers, but the more they order, the harder it is for me to pay for the goods I'm shipping out. How can I balance demand with success?
Have you ever considered outsourcing your entire accounts receivable function? Hiring a finance company to approve credit, make collection calls, receive payments and make deposits can improve cash flow and save costs. Sophisticated asset-based lenders can help you focus on making money, while they focus on collecting it.

It works like this: You mail your invoices to customers as usual, but include a payment address that belongs to the lender. The lender then purchases those same accounts receivable from you, and takes responsibility for collecting the debt.

Most lenders will pay you 80 to 90 per cent of the value of the invoices in advance, with the balance paid when the invoice is collected. The fee for this service is usually simple interest on the outstanding balance (the difference between the cash paid to you, and the cash collected from your customers).

I deal extensively with vendors and customers overseas. I might buy from China and sell in Denmark. Every day it's a different scenario. What's the best way to negotiate international currencies and make sure I get paid by companies that are thousands of miles away?
That's a tall order, but fortunately there are a number of government and private programs that can help. The U.S. government supports the Export-Import Bank, www.exim.gov, that makes and guarantees a variety of loans just for U.S. companies like yours. You may already use wire transfers, which are reliable, but often cost $30 or more for each transaction and may take two or more days to clear your U.S. bank. Of course, neither of those options will work in all situations, so try charge cards when you can. International charges are processed quickly and the foreign exchange rate is typically very advantageous. Apply to accept well-known international credit cards and ask your vendors if they will do the same. Having the power of a large credit company between you and your foreign partners can add another level of security in case of disputes, fraud or other unforeseen circumstances.

We're a very customer-focused organization, and strive to make our clients feel like part of our family. When they don't pay their bills, however, my skills are put to the test. How can I get people to pay their bills without jeopardizing our close working relationship?
First, be sure that the relationship is worth saving. It's good practice to “fire” your worst customers once in a while. But if you're not ready to cut them loose, designate someone else in your organization to make collections calls — preferably someone that is not otherwise in a customer-facing role. They should be polite but firm, and speak directly to each customer's accounting department. If you don't have any extra bodies around, consider outsourcing your entire receivables function. You'll get your cash in advance, and your customers will be well-cared-for by accounting professionals.