What They Don’t Teach You About Cash Flow At University

 

When I was at university, I learned a fair bit about law & accounting (between music gigs, motorcycle trips and pub crawls). What they didn’t teach me (or you?) was the practical stuff. Like why clients don’t pay on time.

It seems simple: You’ve done the work on time and you agreed the credit terms. So why are you still waiting to be paid months after issuing the invoice.

It is in fact complicated: truly, we have a good-sized business devoted to improving accounts receivable for professional service firms in Australia and New Zealand. Why? Because on average law and accounting businesses are paid around 4 time slower than their agreed terms of trade.

You don’t have to be average. Below are three quick “Do It Yourself” tips to improve your cash flow process for accounts receivable.

Tip One: Make cash flow a priority 

Start by measuring your debtor days (how long on average it takes to be paid) and comparing those from month to month. If you don’t measure your results as part of your process you will have no idea of whether you are trending better or worse. Consider rewarding your AR team as they improve. It’s not an easy job and great results should be acknowledged.

 

Tip Two – Forget about email – hit the phones

Professional firms have bigger bills (eg $1,000 – $50,000) and best practice is that your first contact following non-payment by a client should be a polite telephone call. Emails are a cheap, one-way, passive communication. An early telephone call is more personal and will be in alignment with your “professional” brand. A short well managed conversation will let you quickly and cost efficiently triage non-payers into:

• Can Pay – you then follow up with offering easy and seamless payment options;

• Can’t Pay – you then follow up with payment plans, ideally ones like smartAR Fee Funding so you don’t act end up acting like a free bank.

• Won’t Pay – you can quickly understand why and resolve the problem. Until the client agrees the debt it is potentially a dispute, so it is best act quickly now rather than in 90 days time.

Please don’t task fee earners or senior staff to make these calls. Firstly, they will never get around to actually making the calls. Secondly, if they do, that turns it into a very expensive call.

 

Tip Three – Have an “active” follow up and escalation plan

Some firms will bombard slow payers with passive emails until they are 90+ days overdue then the next step in their escalation is to threaten “debt collection”. That’s hopeless. It ignores the practical realities of a proper triage system (Can, Can’t, Won’t).

Your first call will in most instances result in payment or a promise to pay. The escalation (or consequence) if the client doesn’t pay is: another call! The relationship tension is much higher with that second call and all the pressure is on the payer. Why? Because they broke their “promise”. As humans we generally keep our promises and once the slow paying client knows you will follow up – they will tend to keep theirs too.

If you don’t have the administration resources to make these calls, consider getting some help. We know how hard is to release the cash that is locked up in your accounts receivable.

That said, if your cash flow process includes these three tips you will see improved results.

We know, because we use them ourselves to help firms just like yours. If you do need any further guidance or resources to help reduce you slow payers please reach out to us.

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