05 Feb Accounts Deceivables or Accounts Receivables??

Posted at 19:40h in Bookkeeping, Business Strategy by Angie Noll

Accounts Deceivables or Accounts Receivables??

Do you know how much your clients owe you at the moment? Uncollected invoices could be costing you up to 27% of the total invoiced amount! Sometimes referred to as “Accounts Deceivables”, past due client invoices are a source of hidden money in your business. If you were able to collect that outstanding money and get it into your business, it could be a major cash flow boost for the company. According to the Harvard Business Review, here is an average of what receivables are costing a company:

30 day – 1.82 %
60 days – 9.20%
90 days – 17.74%
120 days – 26.71%

The Hidden Costs of “Accounts Deceivables”

But that’s not all! Past-due Accounts Receivables are costing your company in more ways than just based on the time-value of money. Here’s how:

Administrative cost: it costs time and energy for your accounting staff to follow up with customers on past due invoices.
The cost of financing: if you are running out of cash to pay your vendors and bills because there is too much outstanding on the customer side, then you have to borrow money to pay everyday expenses. Thus, you are incurring the cost of financing.
Employee morale is impacted by slow receivables. It is discouraging to work in a business that does not have enough cash flow to support the status quo or to fund growth. In the end, it results in higher labor turnover costs.

How to Improve the Invoicing Process?

At Reconciled Solutions, we find that the best solution to improving your Accounts Receivables is to establish good invoicing and billing processes before you run into a problem. We work with a lot of service-based businesses whose Accounts Receivables process can be greatly improved by setting up better invoicing processes from the get-go.

I recently chatted with a small business owner in the marketing industry who noted that it takes a whole day of work to invoice the biggest client in the company. That’s one client invoice and eight hours of work to send it out. Talk about a poor return on the investment of time! We all know that the larger the client, the more complex the invoicing and collection process can be. It is in our best interest as small business owners to streamline processes and technology so that invoicing our clients is happening at its greatest efficiency level.

Here are some questions you can ask yourself to see if you have set your business up for success when it comes to invoicing:

When onboarding your client, did you collect and establish all the necessary information to bill the client with efficiency? Make sure that when a new client signs on, they have all the correct information as it relates to billing frequency and detail. It behooves you to make sure you have the client’s correct contact accounts payables information, that automated payment information and account numbers are collected and documented, and that you understand who needs to approve invoices and how often payments are issued at their company. Every bit of clarity that can be provided is essential to repeated, ongoing client relations.
Do you have a systematic schedule for releasing invoices? As much as possible, we want our clients to be set up to pay us on a recurring revenue stream so if there is a fixed fee for service, the invoices automatically go out on the same day each month. QuickBooks Online has some great features available to set up and manage recurring invoicing.

If your client is set up on fixed fee invoicing, are you billing in advance or in arrears of the agreed upon work? Setting up advance payment is a great way to establish trust between company and customer and give the customer a feeling of being well-cared for.
If your invoicing is progress-based, how are you supporting your employees and contractors in efforts to quickly and easily submit their billable completions? Are there clients who are sitting out there with 1 or 2 small tasks that have not been completed, and therefore cannot be billed? Enable your team to finish a job with ease and efficiency.
If you are required to submit client invoicing in a specific portal/system/style, has your accountant fully educated themselves on the billing process? Have they recorded a training video of the actual invoicing process so that, if needed, someone else would be able to step in and get the invoice out the door on time and accurately?
Have you set accurate and realistic payment terms for your clients that match up to the way you are issuing payment against the subcontractor work? If you pay your subcontractor in advance for their work and collect from the customer after completion of the job, you have opened yourself up for a cash flow crunch.

Don’t Forget to Improve Your Collection Process!

Setting up your invoicing process for success is only half the process. The actual collection process must operate with efficiency as well.

Can you collect a recurring payment method in advance and plug it into your system?
Can the client click-and-pay with ease? It is important to make payment as easy and stress-free as possible for your client. QuickBooks Online is great for this, as you can check and uncheck the boxes on the invoice for click-and-pay by credit card or ACH payment. Know that ACH payment is always cheaper than paying by credit card. If you can avoid paying credit card processing fees or add a convenience fee to the.
Check your Accounts Receivables report on a regular, recurring schedule. Most often, the reason that clients are not paying you in a timely manner is not because they are disputing something as much as because a contact person has changed and the invoice did not get into the hands of the right person. Or perhaps their email inbox is overfull and they missed the invoice. QuickBooks has a great way of checking if this might be the case, you can look at the invoice sent and check if it was opened and viewed by your customer. If it has not been viewed, chances are that the invoice has gotten lost.
For those clients who are intending to slow pay you, have your action steps documented and enforce the policy. This policy should have been explained during the onboarding process so the client is not faced with surprises.

Be a Valuable Partner to Your Client

In the end, having accurate invoicing and collection processes in place in your business will not only save you time and worry, it will also make you a more valuable partner to your client. Reconciled Solutions’ clients want to understand with clarity and visibility how billing is handled.

Having taken the time to set those policies in place and explain them to your client base shows that that you have your act together and that the service you are providing is valuable. If a client does not pay you or is constantly arguing the bill, perhaps this client is not a fit or does not find full value in the service provided. Ensuring good collections process can be a hidden source of revenue for your company and help you shift from having a bunch of “Accounts Deceivables” issues to having powerful action set up so support consistent practice of Accounts Receivables.