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He specifically asked if it was a common problem for companies to keep accounts receivable up to date. The young surveyor was particularly concerned because he felt he was in line to one day take over the company where he was working.
After assuring him that collecting funds was not always a problem and that many companies did very well in the profit category, I started to reflect on some of the reasons why some companies do have a problem collecting money. In my opinion, the top five obstacles to collecting money are:
1. Lack of desire to make money.
2. Lack of contract and upfront understanding with clients on costs.
3. More emphasis on getting out jobs than billing jobs.
4. Lack of follow up after billing.
5. Failure to pursue payment after 90 days.
I remember that at one national surveying convention, buttons were passed out with the slogan “Profit Is Not A Dirty Word.” I know I have said this before, but you may need to hear it again: We all need profit--and plenty of it--to maintain a healthy business.
Now let’s review each of the five common obstacles to collecting money in more detail. As we take a careful look at each of these five obstacles, evaluate yourself and your company to see if you fall into one or more of these categories. Then, seriously consider how you can improve your collections.
Obstacle No. 1: Desire
Some surveyors lack the desire to make money. Their love of surveying overrides good business sense, and they take any and all jobs that come in the door. In some cases, they will take on jobs knowing that there is little chance of making money. I have a little of this syndrome. If the job is unique enough, we still want to do the survey, even though we know it will be a financial flop.
But you have to step back and look at the practical side: You have employees to pay, the IRS is standing at the door wanting money and you most likely have a family to feed. If, even after you consider your responsibilities, you still cannot muster the courage to operate a successful business, you may want to consider working as a registered surveyor at another firm. I know surveyors who have done this and are much happier not trying to be business owners.
Obstacle No. 2: Contracts
In business, each part of a project has a time and place. Yet many of us get out of sequence. For example, we start the fieldwork before we have a complete understanding of the cost of the work or a contract to perform the services. The likelihood of being paid is greatly increased if you and the client agree on a set price for the services prior to the work being done.
If you charge an hourly rate, the final invoice will often be considerably more than the client expected. As a result, you may not get paid any amount and may even wind up in court. Today, many of the profitable surveying companies charge a lump sum, which requires planning and organization to come up with that sum as well as a profit margin. All jobs should have a scope of services agreed to by the business owner and the client. The responsibility to make money, then, is left to the business owner.
Obstacle No. 3: Billing
I have never met a surveyor who didn’t work hard, but there is a vast difference between working hard and working smart. Most surveyors are so busy doing the work that they find little time to bill the jobs. This is a major problem in many companies. As a company owner or manager, you need to realize that invoicing is a part of the job. Just because the final prints have been made and delivered does not mean the project is finished. Invoicing is a major part--if not the most important part--of any job. Some companies cannot complete the next job without the cash flow from the previous job.
On larger jobs, partial billing schedules of no more than 30 days should be part of the scope. You should always reserve the right to stop work on a project if the invoice amounts are not current according to the scope of work. I know of many projects that went on for six months to a year or more without being paid by the client. The end result inevitably seemed to be that the surveying firm was never paid and lost its total investment in the work. In one extreme case, the surveying firm had to stand behind its product because the courts ruled that having not been paid did not release the company from liability for the plans.
Surveyors regularly ask me for business tips that will improve their life and make their companies profitable. Here’s one: On the last day of the month, stop all production work until all project billing is complete, including the billing for work in progress.
Obstacle No. 4: Follow Up
Just because a job invoice was mailed does not guarantee that the client or accounts payable person received the invoice. When you begin to work for a new client, you should call the client’s office and ask for the accounts payable person. No matter its size, most companies have someone working in this position.
Find out from the accounts payable person what the cut-off date is for an invoice to be paid in the current month. Record this information in the file folder you use for billing. After all the invoices have been mailed, assign a staff person the duty of calling each client to check if your invoice has been received and to inquire when it will be paid. Have your staff member create a monthly report on which invoices will be paid on what dates. At all times, the owner or manager of a company should have a good idea of how much money should be available before the end of the current month. This is how you manage a company.
Also, assign follow-up calls on any accounts that indicate that “funds are not now available” or “the manager that ordered that job no longer works at our company.” The time to address these problems is during the initial invoicing, not 90 days later.
Obstacle No. 5: Pursuing Payment
Now, what about the money you currently have on the books uncollected? Whenever you are owed money and do not have a contract, it can be hard to collect even in small-claims court. There are different ways to collect depending on whether you have a contract with your client.
Without a Contract
In most cases, if the invoice is older than six months, you have stopped billing monthly. You need to start by re-establishing contact with the client, and give them the option of putting the amount on a credit card (all small companies should offer a credit-card option) or setting up a monthly payment plan. You can send them a form that will give you permission to charge a monthly amount to their credit card. This turns a non-contract job into a contract since acceptance of the agreement now gives proof that money is owed. If they stop paying before payment is complete, head off to small-claims court.
With a Contract
Many of us think that having a contract will someday result in the payment of an invoice. This is not necessarily so. Projects can be sold to new owners who feel no responsibility to pay someone else’s debt to your firm. Sometimes, the old owner files bankruptcy or guts the corporation of all funds, and you are left empty handed. If you are owed a large sum of money on an old project, remember that the longer you let it ride, the less the debt is worth. (In the financial world, it’s called “old paper.”) Collecting a large account may require the help of a law or accounting firm. I do not believe it helps to hire collection agencies. They will only collect the “low-hanging fruit”--the funds that are easy to collect. Just remember, if you do nothing, one day you will find the debt uncollectable.
I hope these suggestions help you get your collections current and illustrate the importance of establishing a system to keep them current. My final suggestion is that you re-bill every job every month until it is paid.