Accounts receivable

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     Many small businesses sell to other businesses, companies, corporations, and other big time operations. You work hard to get and keep these accounts--they represent pathways to growth for your small business.

     Getting paid, however, can become a problem with big accounts. Frequently, they don't pay on time, leaving you scrambling for cash flow.

     Here are three methods I've used with some success to keep them paying on time.

     1. Change your terms. Offer a 2% discount if they pay within 10 days or 30 days--whatever you're comfortable with pushing. When invoices arrive at the accounts payable departments of big operations, those offering discounts get attention right away. It's their way of prioritizing your invoice in their system.

     2. Set up progress payments. If you are providing a service based on significant inputs of labor/materials, set up contractual milestones that trigger partial payments on the overall project. As project phases are completed, send the appropriate invoice, referencing the agreement. This method is frequently used in the construction, building trades, printing and other industries, and it can work in other businesses as well. 

     3. When dealing with a buyer who is "lost" in the corporate structure of a big company, it's useful to develop a close and continuing relationship with regard to payments. A face-to-face conversation about timely payments will frequently get positive results. Calls to the accounts payable department are not very effective, and letters from collection bureaus can spoil the relationship. But a manager inside the company and who values the work you are providing, that person can cut through the bureaucratic paperwork logjam and get you paid.

     I once had a conversation with a senior vice president of a major corporation about this. The company was three months in arrears and still ordering. Exasperated, I blurted out that I was not in the business of financing his company. That was it--I had put my finger on the problem in a way that he understood. By continuing to furnish him the materials he ordered, and, at the same time, not being paid in a timely manner, I was providing financing. He suddenly understood that I was not a bank. He picked up the phone and had a check delivered to me the next day.

     Many big companies use this deliberately. They lean on the small businesses that supply them, knowing that the small business will be reluctant to complain too loudly. The person who can cut through this problem is your contact--the more senior, the better. 

     Small businesses that sell to big companies have a valuable customer. But the relationship must be carefully nurtured and managed on all fronts, including accounts receivable. 

     Unpaid accounts receivable can cause many problems for a small business. I wrote about this about six months ago--thought it was time to cover again.