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Receivables and Payables Priorities

One CEO's four-part approach to dealing with accounts-receivable and accounts-payable.
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Bill Rizzo, cofounder and CEO of Rizzo Associates, an environmental-engineering company based in Natick, Mass., has evolved an effective four-part approach that keeps his company's accounts-receivable and -payable systems on target:

1. Provide supervision from the top. "I believe it's essential at a growing company for the CEO to know what's happening with the cash coming into and out of the company and to set priorities for improvement," he says. Rizzo accomplishes that through a weekly half-hour session with his controller, his accounts-payable clerk, and his collections manager.

2. Have specialists monitor accounts daily. "Our company now employs about 100 people, but I made the decision to hire accounts-payable and -receivable personnel when we had only 50 workers," Rizzo recalls. "Before that, we expected project supervisors to handle those responsibilities, in addition to other duties, and found that the extra duties simply made too many demands."

3. Prioritize everything. Rizzo assigns priorities because he believes the company can't devote equal attention to all receivables and payables. "Our highest priorities for collections are those receivables that either are large or appear problematic, perhaps because they have been aging too long," he says. "With payables, we assign five levels of priorities, with the two top levels -- fixed expenses, such as rent or payroll, and monthly vendors, whom we rely on for postage, delivery, and so on -- paid the day bills are due."

4. Identify problems early. With payables, that simply means analyzing every invoice when it arrives to see if the billing information is accurate. The process is more time-consuming with receivables, but Rizzo insists it's worth it. "Our collections manager evaluates each invoice before it goes out to make certain it's accurate and that clients will be able to understand the billing process. Then we send out a written statement 10 days before our 30-day invoices are actually due. That letter asks if they've received a bill and if the information was correct." Finally, the collections manager phones some clients on the 31st day after the invoice was sent to try to determine why payments were delayed. -- Jill Andresky Fraser

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