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10 Most Dangerous A/R Pitfalls

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The Ten Most Dangerous Accounts Receivable Pitfalls gleaned from our years of experience in Accounts Receivable Management and Collection. We have found that most companies, whether large or small, suffer to some degree from reduced cash flow due to slow payment — largely as a result of some or all of the practices described here.

1. INVOICING ERRORS

Far too many payments go uncollected because the invoices went to the wrong address or the business has been sold and someone new is responsible for payables. Any error occurring on an invoice is an open invitation for your creditor to delay payment.

2. DELAYED INVOICING

Invoices should be sent promptly upon the completion of the service or the sale

of the product. If it is a recurring invoice it it should be sent at the same time every month without fail. Failing to do this can delay payment and suggests to your customer that prompt payment is not an important issue.

3. PAYMENT APPLICATION ERRORS

The most common mistake is the simple error of applying the payment information to the wrong account or applying it twice to the same account. Be careful!

4. NO REGULAR STATEMENTS

There are numerous reasons why you must send regular statements each and every month. Suffice it to say, utility companies and credit card companies never miss sending you a statement. You shouldn’t miss either.

5. NO STANDARD PAYMENT POLICY

From the outset, you need to have a standard payment policy in place, and in writing, that outlines when payments are due and what the follow-up steps are for late payments. Make sure the customer knows there is a penalty fee for late payments.

6. NO CONSISTENT FOLLOW-UP

Someone from your company, or representing your company, needs to

follow-up when trying to collect payments that are late. This means having all the pertinent information at hand and making repeated efforts to receive the payment until it is paid.

7. NOT ADDRESSING PROBLEMS EARLY

If payments from a customer are routinely late or you have had to be aggressive to collect a specific account, address it early and provide a payment schedule with the invoice. This will ensure receipt of payments on time. The situation won’t get better if you just ignore it.

8. ACCEPTING A RUN-AROUND

Don’t allow a company to give you the run-around — be persistent and

be sure to reach the person who is qualified to discuss the outstanding payment and cut the cheque.

9. NOT LOCKING IN A PAYMENT DATE

It is always worthwhile to lock in a payment date early on in your collection procedures. If the date passes and you are still waiting for payment, you have a specific date set and can use that for leverage.

10. NOT INCREASING THE LEVEL OF COLLECTION ATTEMPTS

Each invoice should indicate that payment is late and attempts to collect should become more frequent. You should be prepared to take more aggressive action if necessary. Have a plan and follow it.

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