The Strauss Blog

How to Effectively Manage Accounts Receivable

Cash flow is one of the most important aspects of managing an association. One key element of proper cash flow management is appropriate management of accounts receivable.

Studies have shown that many businesses struggle to collect payments from clients, especially small businesses. It can be even trickier for associations where being a member is a choice, and membership is not mandatory. The association sector is unique in a couple of ways related to accounts receivable. Here are a few ways to help ensure you are collecting payment in the most efficient way possible.

1. Email Invoices

In today’s world, so many things are done electronically. This is a way to ensure invoices are not lost (in the mail or otherwise). It is also easier to receive a confirmation that the invoice is received by the member and that they are intending to process it.

2. Review Accounts Receivable Often

Every accounting software has the ability to track the aging of your accounts receivable. It is a good idea to review this often (at least weekly), paying special attention to amounts over 30 days. Reminders should be sent to those nearing their due date but not yet past due.

3. Highlight Payment Terms

Payment terms should be kept short! In the past, it was more common to allow for a longer period of time for payment to be received, due to mail delays, or paper processing systems. Due to the electronic efficiencies we see now, it is more common to see “Payment due upon receipt” on invoices.

4. Offer Various Payment Options

Electronic payment forms are becoming more widely accepted and services such as PayPal and TelPay make electronic payments easier than ever. Most banks also offer electronic payment services. Credit cards are also a quick and easy way to accept payment, although, there are still quite a few people that prefer to pay by cheque. Make sure you are aware of how your members prefer to pay so you can adjust your expectations of how long payment will take to come in. These will also help judge how often follow up communication should be sent.

5. Maintain Good Relationships with Association Members

Happy members are more likely to pay their invoices on time. Strive to deliver on your association’s obligations and develop personal relationships with the members.

Also understand that there are sometimes special circumstances that may delay payment. Being mindful of these situations will drive people to work with your association again in the future.

6. Establish Credit Policies

Understanding your client’s ability to pay is necessary to maintaining current accounts receivable. For example, as an association management company, we often process payments on behalf of our association clients, so we know that payment can be expected.

For other types of clients, start by offering them small amounts of credit or checking references prior to extending the credit. You could also shorten your payment terms and make sure this is communicated effectively with the delivery of the invoice.

7. Pick up the Telephone

Have a friendly conversation with the person that owes you the money. Having a conversation with a person can put their personal situation into perspective quite quickly. Discuss options for receiving the payment, perhaps post-dated cheques or a series of payments. If the person won’t have a conversation with you, it might make it a little easier escalating the situation to a collections agency, knowing you have exhausted every other option.

8. Use a Collection Agency – Last Resort!

If you are unable to collect from a certain client, you should seek the help of a collection agency. These agencies tend to be very aggressive and charge for their services (usually the client). This would definitely be a last resort. Chances are your client will not be happy to have received notice from a collection agency, however, they are likely the kind of customers you don’t want to do business with in the future.

Also, as mentioned earlier, membership in most associations is not an obligation and therefore members cannot be held responsible for not paying their dues, other than to terminate their membership.

When maintained regularly, managing accounts receivable should be straight forward. In the association sector, it is most important to keep in mind the few special circumstances that apply to maintain proper cash flow to keep your association afloat.