Collecting invoices is not an easy and seamless process. Anyone who has been involved in collecting payments knows the process frequently requires extensive follow-up after the invoice is sent out. Who should be responsible for collecting invoices at a small firm?
There are some obvious choices:
- The firm’s bookkeeper or person handling the financials.
- The account executive handling the client.
- The sales manager or other manager.
Before, we get into who should handle collections (AKA accounts receivable), we should discuss what goes into the accounts receivable process.
Calculating The Amount Owed By the Client
Depending on the business, this could be simple or complex. For example, this process might involve looking at timesheets, applying rates which are specific to clients, and adding in material costs. In a more simple scenario, this might only involve multiplying quantity times price.
Sending Out the Invoice To The Client
Generally, this involves preparing the invoice in the company’s accounting system and emailing a PDF to the client. (What’s written on the invoice is very important! Read This For Details!)
Recording Any Payments
Payments can come in various forms like paper checks, online transfers and wires. There needs to be a person that records payments in the company’s accounting system, and lets the relevant person know when outstanding invoices haven’t been paid.
Following Up With Clients On Unpaid Invoices
This involves both reminding the clients of any unpaid bills, and working through any issues brought up by the client.
With small businesses, there is a temptation to put all these responsibilities on one person. Wouldn’t it be easier to have one person handle everything versus creating an accounts receivables process where multiple people have to communicate with each other?
Separation of Collections and Follow-Up Duties
There Should Different People Handling The Administrative Parts of Collections & Following Up With The ClientWhile there is an undeniable logic to having one person handle everything, it has a major weakness. It ignores that these roles require different skill sets. A bookkeeper might be able to effectively handle calculating costs, sending out the invoices, and recording payments, but, they might not be good at getting clients to pay in a timely fashion. The first three tasks mentioned involve looking at documents and don’t necessarily involve social interaction. Effective collections often involve a high degree of personal interaction and even a creative approach. This role is often best suited to an account executive, sales manager, or business owner.
My Favorite Recent Collections Story
A client for one of the websites which I serve as publisher owed $700. My primary contact at the firm had been let go. The new person replacing her did not respond to my emails. As the company was based overseas, with a 13 hour time difference, getting in touch by phone was difficult. Based on the fact that they had stopped advertising, let their marketing person go, and weren’t returning my emails, I was pretty sure that they did not intend to pay the invoice. I needed to do something radical.
I had the CEO’s email. I sent him a note which stated the facts and asked in bold letters: Was I not getting paid because his company was going out of business? I got paid via PayPal the next day and received an email from the CEO asking why I had not called about receiving payment.
I believe that had I not added the bankruptcy line, my company would have never been paid. The CEO paid in order to prevent a rumor from being started about the solvency of his company. While the approach which I took was extreme, and I only did it as a last ditch effort, it does demonstrate the creativity and social aspect of getting paid. Would a bookkeeper be comfortable using this type of “social pressure” to get a client to pay?
For the record, a couple nice emails / phone calls politely reminding the client that invoice is outstanding and asking when payment can be expected usually works fine.