OPERATIONAL IMPROVEMENTS TO ACCOUNTS RECEIVABLE

Some better practices you may wish to adopt are:

• Have the right mental attitude about credit control (e.g., when asking for your money, be hard on the issue but soft on the person).
• Provide immediate notice of overdue debt to the sales team.
• Establish clear credit practices and communicate these credit practices to staff and customers.
• Be thorough when accepting new accounts, especially larger ones (e.g., perform the credit checks that a bank would when lending the same amount).
• Continuously review credit limits, especially for major customers, if tough times are coming or if operating in a volatile sector.
• Monitor sales invoicing with promptness and accuracy.
• Charge penalties on overdue accounts.
• Accept credit cards for smaller high-risk customers.

REPORTING ON YOUR ACCOUNTS RECEIVABLE

The graph shown in Exhibit 13.1 will reduce much of the need for a larger debtor report. This exhibit focuses on debtors' aging trend. You need to go back at least 12 months, preferably 15 to 18 months, to catch the impact of last year's seasonal fluctuations.

AVOIDING ACCOUNTS RECEIVABLE MONTH-END BOTTLENECKS

Once again, electronic interfaces with key customers and electronic cash receipting are the keys to moving out of the processing battle at month-end within accounts receivable. Some better practices are:

• Cut off accounts receivable at noon on the last working day, with the afternoon sales being dated as the first day of the new month—you will need to ensure that customers still pay invoices according to your terms.
• Change the sales invoice cycle for all “monthly sales invoices” to customers (e.g., May 26 to June 25) or invoice all transactions to the 25th of the month, with a second invoice for the remaining period of the month.
• Send electronic invoices to your major customers, including their general ledger codes—the easier you make it for them, the better for both parties.
• If you need details from subcontractors in order to invoice, look to streamline processes in a meeting between your customers and your main subcontractors to ensure a prompt and accurate billing process.
• If you have a lot of subcontractors, consider offering them a free accounting system that has an automatic link to yours for all invoices relevant to you.

INCREASING THE USE OF DIRECT DEBITING CUSTOMERS' ACCOUNTS

Many retired people will make a special trip into town to pay many of their bills by check. It is good exercise and an excuse to get out of the house. However, this activity is very costly to the receipting supplier, typically some utility. Many organizations have tried in vain to get customers to allow them direct debit to the customers' bank accounts. There are many hurdles to cross, including customers' perception that their bank accounts are now at the mercy of another company. Some of the better practices to sell this change are:

• Offer a cash draw each month, financed by the cash flow savings from receiving prompt payment. One telecommunications company offers three $10,000 prizes each month. Many retirees would sign up for this.
• Offer to waive your next price increase for all those who sign up for direct debiting.
• Offer a direct debiting discount each month on the total invoice, splitting the benefit you gain between you and the customer. You can make this appear more attractive by offering a large discount on a small, fixed-price component of the transaction (e.g., energy retailers have a fixed and a usage charge, so one gave a 20 percent discount on the fixed charges, which was only $4 per customer, for every month where a direct debiting authorization was active).

DEBTORS' COLLECTION BEFORE YEAR-END

Although debtors should be a focus all year round, and in some cases involve the CFO and CEO in direct contact with their counterparts, there needs to be an added drive from month nine onward to clean up everything over 60 days old. A phone call from your CEO to the other CEO could save thousands in legal fees and possibly the whole debt, if you collect it before the company has gone into receivership. Remember, if it takes 10 hours of CFO time to collect $50,000 from a high-risk account, that is a very good return on time—$5,000 per hour.