Question: We are doing an evaluation of our accounts receivable process. Our company is three years old, and we are expanding. We are looking for another office employee, and one of their primary responsibilities will be accounts receivable. What are the key components of a billing and collections process? Please share any tips that you have discovered through the years.

Answer: Accounts receivable is one of the cornerstones of any prosperous business. A successful collections process begins with a strong billing process. Both of these systems have many similarities to those of running a service route. For example:

• The major components — billing and collections — are handled on a daily routine basis
• As with route service procedures, there are written guidelines with training, and backup personnel are assigned
• Customer communication is essential

BILLING CONSIDERATIONS

One of the first decisions to make when creating an accounts receivable system is billing frequency. Our industry standard is 28-day billing as we service on a weekly basis. Further, this method allows for 13 billing periods (52 weeks divided by four-week cycles), whereas monthly billing results in 12 billing periods.

Another decision is billing creation. Do you designate specific “billing days” every 28 days to bill all customers, or do you bill daily? Billing every 28 days requires that deliveries made on other days of the month be prorated to the next “billing day” so that the customer’s first invoice is less than that of a full billing period. Billing every day eliminates prorated first invoices, but it must be done every day. Weekends and holidays will cause additional billing to be done on the next workday.    

Software is vital in the billing and collection process, allowing for automated invoices, payment tracking, reminders and customer notes to be on file. Examine several and compare ease of use, compatibility with routing and financial reporting. Automation can minimize billing errors and increase efficiency. Ensure your software can accommodate your needs as your company grows and expands as future system conversions can be time-consuming, costly and stressful.       

Besides accurate billing information, invoices should also contain your company’s terms and conditions. Payment terms, late fees (if your company elects to charge) and charges for damage to equipment while in the customer’s possession are important to convey to the customer. Your company may elect to charge a “damage waiver fee” to cover incidental damage up to a certain dollar amount. If the customer waives this charge, they must submit proof of insurance covering damage to rental equipment on their job site, including your equipment. Accounts receivable personnel should maintain this documentation and request renewal information from the customer as needed.

COLLECTIONS CONSIDERATIONS

Communicate with each customer that they have several payment options. Electronic funds transfers, or EFTs, are the most efficient for both parties. Your billing software should be able to securely handle these transactions. For check payment, your company may want to consider remote deposit capture, or RDC, allowing you to scan checks in your office for deposit into your company bank account. If you choose the traditional method of receiving customer checks and then physically depositing them into your bank, do so on a timely basis.    

Accounts receivable aging reports are as important as daily route service reports. They both summarize large amounts of information and, when frequently examined, can detect issues that require action. An effective strategy is to pull a complete aging report at the beginning of the week and use it as a guide for collections activity for the coming week.

Aging reports are categorized by days past the due date, and various strategies can be used to effectively secure customer payment. Here are some suggestions based on our experience:

• Over 30 Days Past-Due Accounts – Make personal contact with the customer and discuss the specific invoices that are past due. Do you need to resend the invoices? Will past due charges be added after a certain date? Note all responses from the customer into your collections system. 
• Over 60 Days Past-Due Accounts – Further follow-up with the customer is needed. Contact them and refer to the conversation that you had at 30 days past due. At this point, the route service driver can be of assistance. Delivering the past due invoice and any other correspondence to the superintendent on the job site is a way to make other members of the customer’s company aware that there is an issue. Internal communication and pressure can help to resolve the issue.  
• Over 90 Days Past-Due Accounts – Increased action is needed. Besides a phone call to the customer contact and perhaps their management, consider halting service on the job site for a week. Care must be taken to avoid creating unsanitary conditions, and the customer could call the local department of public health. The final action is to pick up your company’s equipment and file a lien on the job site. Legal counsel is needed, and you may want to notify the customer that this cost will also be included in their past due amount.  

TIPS FOR A STRONG SYSTEM

We have found that these suggestions can lead to successful collections while maintaining customer satisfaction:

Establish clearly defined and easily understood payment terms and conditions. Include these terms with all invoices and statements.

Have a process in place for handling disputes. Address these issues in a timely fashion, staying in close communication with the customer. 

Evaluate disputes as to why payments were late. Is the customer’s key contact information correct? Is there a backup to the key contact? Does a copy of the invoice also need to be sent to the job site or another department in the company?   

Maintain strong customer relationships during the collections process. Do not create a “us versus them” situation. Work together to resolve any issues.

Analyze your results. Evaluate your aging reports and monthly collections results. Establish goals and work for improvement. The expression “if it can be measured, it can be improved” is certainly true for this aspect of your business.   

As we continue to emphasize, routine and timely invoice generation and collection follow-up are essential to your company’s success.          

FINAL THOUGHTS

We used the analogy of a PRO’s route service to that of an effective billing and collections program. Routine, daily and consistent with continuous training — all while maintaining a professional relationship with your customers. These are the keys to a successful accounts receivable program.