Freight brokers, manufacturers, and those in the supply chain know as well as anyone that problems with accounts receivable can lead to anything from simple annoyance to a serious business-killing disaster. It’s common in all of these types of businesses that you are working with several vendors and customers. If you are a large enterprise, thousands of different invoices are involved! So you’re probably wondering: what you can do to prevent this?
It starts with making sure you follow the law every step of the way. Any legal claims against you resulting from a conflict with a customer can put your ability to get your freight broker bond or any other type of bond in jeopardy, risking your entire business.
Luckily, from getting things in writing to avoiding emotional decision-making, getting accounts receivable right is easier than you think.
Step 1: Get It in Writing
It really can’t be emphasized enough — get your agreement in writing. A huge number of accounts receivable problems would never have existed if the parties had simply followed this simple rule.
You may be thinking, “But this customer and I have done business for years, so how can I suddenly ask for things in writing?” That, however, is precisely the wrong attitude. Getting things in writing is not about putting a business relationship at risk; it’s about clarity. It’s about making every subsequent step clearer for both you and your customer.
When done right, both parties benefit from having a clearly defined legal relationship with specific prescriptions for any problems which may arise, such as a lien. This single step can protect you from messy legal entanglements and from destroying relationships, so get on it! It’s a no-brainer.
Step 2: Set a Regular Billing Schedule
Think about your personal life: what’s harder to pay, an unexpected car repair or your regular monthly rent or mortgage? Obviously, it’s the latter simply due to its regularity and predictability. The same principle applies to accounts receivable.
So when possible, always ensure that invoices are sent at regular intervals. Beyond making them easier to pay, it’s a nice courtesy.
Step 3: Evaluate Credit, Yours and Theirs
The business credit score of your customer matters. It should always factor into how much credit you’re willing to extend to them in terms of payments. Remember, banks perform credit checks for a reason and so should you. Only offering credit to those customers who have proven their ability to pay it back will raise your chances of being paid on time.
And you also have to take your own credit score into account. Extending too much credit puts you and your credit score at risk, a problem which can affect all aspects of your business.
Step 4: Try to Collect on Delinquent Accounts
This connects back to getting things in writing. Instead of sitting around and wondering when you should start nagging your customers about late payments, you need to have a prescribed response to any delinquent payments in the initial contract.
In addition, you should also try to contact them regularly to politely but firmly request they make their payments. It’s all about taking the right tone to maintain your relationship with the client while also making it clear that they need to pay ASAP. For more ideas check out these 10 tips for making collection calls.
Step 5: Don’t Let Disputes Get Out of Hand
Any disputes which arise can not only harm your relationship with your customers but can lead to claims against you and difficulties with your freight broker bond down the road. These must be avoided at all costs.
It’s best to address problems promptly and professionally by, for example, offering additional credit as compensation. These resolutions should also be in writing to avoid legal actions later on.
Step 6: Use a Lawyer When Necessary
Fear of getting a lawyer involved is, to be frank, an amateur mistake. Lawyers are there to help by making sure everyone is following both the law and the contract. If there’s a problem, good legal advice can make all the difference in the world in terms of resolving the conflict in the best possible way for your business. So don’t be afraid to call a lawyer when difficulties arise.
Step 7: Leave Your Emotions Out of It
Personal relationships with clients are often the reason for avoiding things like written contracts. But this can lead to confusion, awkwardness, and frustration when it comes to determining how to handle problems.
So it’s best to avoid letting emotions take over your thinking throughout the process, from making the contract to contacting them about payments. Just remember, it’s ultimately a business relationship above all else.
The Takeaway? Be Firm and Clear
If there’s one summary of these steps, it’s to be firm and clear. This will make all your business dealings easier from start to finish. When done right, good communication benefits both you and your clients.
So start taking these tips to heart and start avoiding delinquent payments today.
What kind of accounts receivable problems have you experienced? How do you think you could have avoided them? Let us know about your experiences in the comments!