During my career I have become very successful at keeping the number of uncollected accounts to a minimum (in one company we had only one invoice we had to write off). Collections definitely rates in the top 3 of the most undesirable duties, but there are ways to minimize the pain. The best way to do so is by implementing tough practices that send a message out there: “we are serious about delivering what we have promised and we expect the same from you”. Here are some of my techniques:
1. Everyone who “touches” the client, from your admin to the VP of Sales, CFO to CEO, account exec to those working on the deliverables, should be involved in collections. Many times the slow payers will give in, because they realize that the entire organization knows they haven’t paid. When the client calls to talk to a project manager, the admin should tell him/her that the account is overdue and go through a procedure (or send them a central contact for collections) to get a firm written commitment to when the payment will arrive. Also have them fax a copy of the check that is going into mail. The client does not get to talk about what they need until your company gets reassurance about payment.
2. Sales people should not get their commissions or bonuses until the client’s check clears the bank. They should be the first ones to call the client the morning after NET(insert your term) is an hour overdue. This stops them from making risky deals.
3. Do not provide the final deliverable until the payment has cleared. PERIOD! As a startup you can’t afford to be a bank. No pay = no product, no source code, no copyright assignment, no admin password to the site, no final document, no service call. Make sure this condition is in your contracts! This is the one condition I never let anyone strike out of contracts.
4. Make sure that a fixed bid/flat fee project requires a deposit before the work commences.
5. Until you are a mid-size company , CASH IS KING! Don’t take deals that have long A/Rs. I am never OK with anything longer than NET30. Again, startups are not banks.
6. If a client is within driving distance and they tell you they will mail the check today – send someone from your crew to pick up that check NOW! This is a good way to call them on their BS and get paid. I always send the biggest dude I got in my office or go myself (I used to be a bouncer).
7. If all goes bad, sell the debt. Let the collectors have fun.
At the end of the day what matters are your company, your employees, and your good customers. You can not allow all of them to get robbed of your resources by a bad customer.
(Now that I have given some of my tricks, you will have to make me your head of Operations!)
If you have some techniques and policies that have worked for you, please share in the comments section.