Stay on Top of Receivables

Source: Journal of Accountancy

The author provides tips for managing receivables in a difficult economy, including:

• Send timely bills. The earlier you bill a client, the earlier you'll be paid. Plus, invoices are more likely to be paid when the value of your work is still fresh in a client's memory.
• Know your clients' A/P procedures. Learn about any payment processing requirements – such as electronic invoice submission – up front. If a client has a policy of paying invoices in a certain time frame – such as 30 or 45 days – ask for a quicker turnaround (particularly if the client is struggling financially).
• Explain unusual items. If you think an invoice will elicit complaints, call the client with an explanation before you send it.
• When invoices become overdue, follow up directly with clients rather than relying on past due notices.
• Consider establishing reserves for amounts you don't anticipate collecting.
• Look for red flags, such as complaints about the quality of your work, sudden insistence on sticking to a budget, or troubling SEC filings.
• Consider whether you should stop work (or threaten to do so) if past-due invoices aren't paid.
• In the event of an actual or potential dispute, have a colleague sit in on client calls or meetings to help mediate the dispute or serve as a witness.
• If a client asks you to discount your fees, ask for a release of liability, particularly if the client expresses dissatisfaction with your work.
• If litigation becomes unavoidable, weigh the potential costs and benefits. Is the client likely to bring a counterclaim for malpractice? Does your engagement letter provide for the prevailing party to recover attorneys' fees? Are you entitled to collect interest on unpaid invoices?

For the complete article, read “Dealing With Clients in Financial Distress.”

From Journal of Accountancy, American Institute of Certified Public Accountants, September 2010, http://www.journalofaccountancy.com/Issues/2010/Sep.