Think of it this way, a company that operates with low internal friction wastes less energy in generating progress. Lowering internal friction leaves more energy available to address service to customers or in improving processes.

The Friction of the Collection Process
One source of internal friction is in the invoice collection system. Invoices are produced late because important elements that are needed are withheld or given priorities that are lower than getting on to the next job. Late invoices are seen by clients as less important because time has gone by since the service or product was delivered. The perceived value of a service provided decays at a rate no less than the square of the time elapsed since its delivery. Momentum is lost. If the invoice is delayed, the client is not motivated by any apparent urgency implied by immediate receipt. When the invoice comes close to arriving when the associated service has just been completed, the message reads something like, “You have received your service (product); I expect to be paid for it.”

Collection is more difficult as time progresses since the initial receipt. There appears to be a critical period of about 30 days, depending on industry practice, that is vital to smooth and successful collection. You must collect your invoices between 20 and 50 days after they have been delivered.

Missed Collections and Internal Friction
You cannot afford to have your organization distracted from important current business by Herculean efforts on past-due invoices. There is merit in the "strike while the iron is hot" advice.
To the extent that you can, create and improve you invoice-to-collection process. Your target is to have the system run in automatic. The invoice process should set alarms that off at specific intervals after the work has been completed. Each alarm calls for a specific action. For example, two days before the invoice is mailed, a call is placed to the person at the client's location who is the approval authority for your invoice. A responsible person in your organization, familiar with the account and the product/ service provided calls and initiates a conversation confirming the completion of the work and giving the heads-up about the invoice, requesting immediate attention. Having confirmed satisfaction with the service, the request is made for reciprocal consideration.

Timing of Process Steps
No more than two weeks should go by without a next contact, if the invoice payment has not been received. If payment has been received, a confirming thank you should be "automatically" sent. Each step should be mapped-out, a measure of effectiveness should be attached to every step. A level of acceptability should be attached and tracked to pinpoint areas where extra effort for improvement is called for.

As the top decision-maker in your company, you must include invoice aging as one of your critical numbers. You need to know the size of the overdue invoice pool. One metric, you need, has to do with comparing the value of the “overdues” with average sales per day. The ratio is called "days sales outstanding." The quantity (number) of invoices overdue is also a valuable tracking number. Your accounts receivable department should accumulate notes on all efforts made to collect overdues. Every contact made with the client, no matter where in your company it is initiated, on the subject of a specific invoice, must be accumulated in a single file. Top management support of the notes collection effort will facilitate it and raise the chances of success. You need to identify a line in the sand to dictate when you must become involved with individual accounts. The alarm parameters will get you involved when you will be able to be the heavy hitter only when necessary, thereby leveraging you involvement. It also will signal extra effort at subordinate levels to prevent having to ask for your engagement. There is a story about the now-deceased Bill Marriot Sr. reading all complaint letters. Site managers’ jobs included keeping the elder Marriot’s reading load light.

The outcome of this process thinking is to train your organization and your clients' people about how you regard the importance you place on this part of your business.

Are you producing needed cash flow? Do you still have checks left in your register and no money in the checking account?

Want to read/ hear more on this subject? Send me an email note, or call to leave a message. I’ll get back to you. Tell me where you are on the collection issue. Give me 3 alternate times/ dates and I’ll return your call.