Alternative collection methods at this time of year, even if it’s something radical, might come in handy if you need to ‘stock the cash coffers.’
As the last quarter of 2016 draws to a close, many of you and your financial staff are seeking to “stock the cash coffers” of the firm. Ending bonus distributions, sheltering funds for tax payments, capital expenditure purchases, and other cash requirements place demands on the available cash that the firm needs.
Despite the hue and cry from the financial staff to your principals and project managers that collections of open accounts receivable have to intensify, their continued pressure may or may not deliver the cash required. Depending on how well your firm manages the client contractual agreements, how clearly the contract terms are reviewed with your clients, and what expectations are set and managed by the technical team, you and the financial team are either seeing the flow of cash or your firm continues to be squeezed for cash.
The following are some tips that should help facilitate cash flow during this period:
- Pick up the phone; reach out and touch your client. Texting and email are perfect vehicles for communication, and they are the preliminary entry point in the collections effort. However, when you have finally seen enough comments to the collection effort like “emailed the client” over and over, it’s time to get radical.
Calling your client allows more than just the collection call, it is a touch point that establishes direct communication. Aside from asking for payment, checking in with your client, asking what other opportunities might be available, and even arranging a lunch or dinner meeting, facilitate potential new business opportunities.
A variety of studies have shown that frequent and consistent client contact resulted in the client’s perceiving that you, the consultant, were more valuable as the project came to a close rather than at the very beginning of the project. These frequent client touches were not lengthy, but rather short outreaches that conveyed a genuine interest.
- Pay your client a visit. Another radical concept in the age of instant electronic communication? Meet with your client face to face! Depending on where your clients are, how easy it is to meet with them, and your understanding of your access to them, either a scheduled meeting or a drop-in to review and make the collection visit can sometimes deliver interesting results.
A COO of a large environmental firm finished up a meeting with a client and noticed on the building directory that another client that he had not spoken to in awhile was in the same building. Calling his controller, he found out this client had a large open invoice.
The COO paid an impromptu visit on the client’s CEO, was met with a hearty handshake, and spent the next hour reviewing not just the open invoice, which the CEO apologized for (the client CEO had her CFO wire the funds during their meeting), but they discussed new opportunities that were on the client’s horizon. That impromptu visit resulted in a stream of new projects!
- Use radical pickup or delivery methods. Most of the clients we work with are currently seeing invoice delivery methods that have replaced the U.S. Postal Service. Standard operating procedure has become the emailing of all invoices (if your contract requires hard copy delivery, you can still email, as it will expedite collections in the future), uploading invoices into the client’s accounts payable portal, and other electronic delivery methods.
Depending on what your contract terms with your client are, your firm’s expectation is either paid upon receipt, payment in 30, 45, or 60 days, or paid when paid by the prime. Your financial team’s ability to predict the cash inflow relies on the consistent delivery of payment by your clients.
Payment by ACH or wire transfer is more common and alleviates the “check is in the mail” excuse, since it is immediate (relatively speaking). We all could fill a book on the interesting excuses that we have heard about when the payment is going to arrive.
Many clients, on smaller invoices, are using credit card payment up front. Working with a recent client, more than 60 percent of the invoices that they were chasing were less than $2,500, and instead of wasting time on the billing, chasing, and sometimes legal costs, they now request full payment on a credit card before the work commences! This has resulted in a decrease in the chase of these items.
Using express delivery can be cost effective based on the value of the payment. If your client owes you thousands of dollars, the cost of a FedEx is going to be much less than the expenditure of project manager or principal in charge time-at-billing rates.
A CMO of a major airline engineering group called a client that had open invoices in the millions of dollars and requested a payment. The client’s CFO indicated that a payment would be prepared that afternoon. The CMO indicated that she would personally pick up the payment, requested a jet, and made a personal visit to the CFO. Not only did she pick up the payment, but she also had a discussion of future work, and a few months later, a large order was submitted to the CMO.
The power of a face-to-face meeting or a phone call are approaches that used to be SOP. The integration of electronic tools has modified our collective behavior and interaction. The soft skills of communication and client connection are critical skills to develop with your younger staff, who will ultimately fill the PM and PIC roles.
Train your staff in the art of communication, take them on client visits and show them what the power of a face-to-face visit can achieve.
Ted Maziejka is a Zweig Group financial and management consultant. Contact him at email@example.com.