March 20, 2005
Collection Tip - Honey vs. Vinegar
The time to work accounts receivable is before accounts becomes a problem, not afterward. The preferred way is to work them as low as possible in the organization. Use honey instead of vinegar.
Assign honey duty to someone in your administrative staff who smiles over the phone. If you are billing individuals, have him or her call and confirm that they received the bill. Ask if they have any questions? Remind them of the due date. If payment isn’t received within days of the payment date, call back and let them know you haven’t received the check. Ask if they mailed it. If they haven’t, ask if they will place it in the mail that day or bring it by the firm's office.
If it is a business, try to get agreement to mail the bill directly to accounts payable, with a copy to your contact regarding the firm’s services to the firm. Let the client know that paying the bill on time will not waive the client's right to raise questions or dispute charges once he or she has reviewed their copy of the bill. If you have to send it to your client contact, find out the name, phone number and e-mail address of their secretary (or assistant). Have the person in charge of dispensing honey call the secretary after the bill is mailed and ask the secretary to be sure the bill makes it to the top of the contact’s to-do stack. Let the secretary know you will call back in a few days to check on the status of payment.
If you can establish an awareness that if the bill doesn’t get paid (“that nice person from the law firm will be calling”), you will find that your bills sail through the system. Of course, to make it happen, you need software to keep up with collection activity and payment promises. What happens when the honey doesn’t work? That’s when your business software needs to be smart enough to automatically notify the appropriate person in the firm that their intervention is required.
Using honey will not eliminate the need for dispensing vinegar, but what is astonishing is that you will dramatically lower funds tied up in Accounts Receivable by working accounts before they become a problem. It is the old 80/20 rule. 80% of your excess investment in AR is from clients paying a little late versus real collection problems.
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Filed under Cash Flow Issues by Tom Collins