Are Your Accounts Receivable Piling Up?
One effect of the Covid-19 pandemic is that many businesses are struggling with cash flow. This translates to an accounts receivable problem for the companies they owe money to. Knowing what your business can do lies in having good strategies in place to follow up with clients who are not paying their bills.
Approaching Clients Who Owe You Money
At a time when many businesses are on the brink of failure, it is essential to approach clients that owe money with compassion and empathy, even when the conversations are difficult. Following these seven steps:
1. Establish strategies. Establish internal strategies to monitor your receivables and set triggers to warn you when the amounts reach certain thresholds. You always have the option of suspending servicing the client if an arrangement cannot be worked out.
2. Be proactive. Don’t let receivables wait before following up.
3. Communicate clearly. Speak to customers who miss a payment. Be empathetic but firm. Find out when they can make a payment or enter into a payment arrangement. Let them know you value them as customers but that they need to pay.
4. Set a payment date. Follow through with stopping services if they miss that date.
5. Put it in writing. Send a registered, return receipt requested letter requiring payment and letting them know that they will be sent to collections if payment is not received by a certain date.
6. Hire a collection agency, if necessary. Before you do, be sure you understand the fee structure. Collection rates vary, and many agencies require a minimum debt amount. Average rates generally are between 7.5 percent and 50 percent per account. In some instances, it may be better to just let it go and write off the debt.
7. Go to court. This may be an option if the amount owed is high enough to justify the time and cost.
A Nonpaying Client Is Not a Good Client
It is painful to lose a good client, especially in these difficult times. But a client who isn’t paying is not a good client, no matter how strong or long-standing the relationship. Sadly, some businesses are not going to survive. Those that do will be the ones that implement the strategies, processes and procedures that can steer it through difficult times even when forced to make difficult decisions.
A final word on taxes: Unfortunately, there is no tax break on unpaid invoices. If you have a cash-based business, you do not report income until you receive it. Nothing has changed. It was never income in the first place. And if your business is on an accrual-basis, then you probably reported income when you issued the invoice; so you've already accounted for the unpaid bill as income. This can be written off. In either situation, you are out the money. The IRS does not give you a special break for not getting paid. But any deductible materials you purchased for the job, for example, are still deductible, even though you did not get paid.
Call us today if we can help you with your accounts receivables.