* * *
It took a couple of months for Burkhard to clean up the residue of all those years of neglecting his accounts receivable. But he experienced one pleasant surprise: The Placers was able to push delinquent bills down to about 5% of sales, compared with about 15% previously. And although the system doesn't have a long-term track record, many customers have started paying within 30 to 45 days instead of 60 to 90.
Burkhard is more than pleased with the results: "Our cash flow has improved and, best of all, become much more predictable. Now, when I look at my weekly accounts-receivable reports, I can actually predict how much cash is coming into the company -- and when I can count on it."
He smiles. "If a recession makes our customers slow down their payments, I feel as if we're ready for them. And in the meantime, I feel comfortable again about making business decisions."
-- Research assistance was provided by Anne Murphy.
TAKING UP THE COLLECTION
Five surefire ways to get what's owed you
Short of overhauling a company's entire accounts-receivable system, the way Alan Burkhard did at The Placers Inc., there are plenty of ways to speed up billing and minimize the risk of bad debt.
* Get active. Passive approaches cripple most companies' accounts-receivable systems, according to Ron Schneider, controller of Motif Designs Inc., a $10-million wallpaper and fabric manufacturer in New Rochelle, N.Y. "Most companies let their clients determine their cash flow, instead of proactively managing their accounts receivable."
At Motif Designs, Schneider sets weekly collection goals for his staff based on his assessment of the company's cash-flow needs. Even more unusual, he leaves it up to his employees to decide which accounts are most profitable for them to focus their attention on. Schneider reinforces his system with a biweekly bonus that rewards each individual according to his or her own performance, based on mutually agreed-on goals. Results have been impressive. Due in large part to the increased cash flow from accounts receivable, Motif has been able to reduce its bank borrowings by 20%.
The best way to actively manage accounts receivable is to start early -- ideally, long before sales invoices ever get written and mailed. Judson Blaine, president of The Judson Lumber Co., which does more than $10 million worth of business in Columbus, Ohio, actually performs credit checks on companies before deciding whether to send his salespeople after their business. That's one major reason the company's bad-debt ratio is only 0.3%, less than half the industry average. Before approving a potential client, Judson's staffers consult an elaborate network of contacts, including local credit bureaus and other building-contractor suppliers. "If a guy is going to stiff us," figures Blaine, "he's probably already stiffed carpenters or plumbers in the past."
* Involve your sales force in collections. Jeff Kamien, controller of $2.5-million New Methods Research Inc., a software developer for medical research, in East Syracuse, N.Y., ties his salespeople's commissions to the collection instead of the order stage of his business. "This makes our sales force think about the type of customer they're bringing in the door," he says. "If their commissions are hanging in the balance, they're not going to waste their own time bringing in a dog order."
Motivated salespeople can also be helpful when invoice follow-up becomes necessary. "Salespeople usually have an easier time than accounting people do getting customers to take their calls."
* Streamline your billings. BSW Architects, a $17-million business in Tulsa, sped up its collections by, quite simply, speeding up its billing process. "We started sending our invoices by overnight mail every two weeks instead of just mailing them every month," says Bob Sober, one of the firm's three general principals. "Then we appointed a business manager for every project, whose responsibilities included following up by telephone the next day, to make certain the client received our bill and didn't see any problems with it." If a check doesn't arrive within a week, the business manager calls to find out when the payment is coming.
Similarly, Mel Chaskin, president of Vanguard Research Inc., a $6.5-million Fairfax, Va., company, includes a prepaid Express Mail envelope with each invoice. "That costs me about $8 per envelope," he says, "but if the check is for $200,000 and it gets to my bank in one day rather than a week, I figure I've saved about $500 in financing costs."
* Keep relations cordial. "I never approach late payers with: 'Listen, deadbeat, I want my money,' " emphasizes Loretta Johnson, controller of $18-million Industrial Machinery & Equipment Co., in Warren, Mich. "Instead, I'll call customers and tell them, 'Our bankers won't lend us any more money if I can't clear up your overdue account.' Or, if customers have placed new orders, I'll tell them that we want to ship them our product, but our bankers won't let us until we get some money from them that can be applied to their oldest invoice." Johnson's approach works. Her bad debts are below 1% of sales.
