Solving the Aging Accounts Receivable Dilemma
By: Andy Harmelin
President, A.I. Consulting, LLC
We were recently engaged by a 60 person Architectural firm in the Philadelphia area to assist them in reducing their aging accounts receivables. The near term goal would be to realize significant amounts of older receivables and bring the firmís A/R within normal industry parameters.
Prior to this assignment we had successfully provided contingent fee collection services to the firm. At our kickoff meeting it became apparent that certain strong procedures needed to be implemented to accomplish the near term goal. It has always been my belief that Project Managers should be responsible for their entire project from providing quality deliverables to meeting company financial expectations. I have also found that routine telephone contact with clients is very valuable.
Working together with senior management and Project Managers we formulated a three-pronged approach:
Project Manager & Principal in Charge Action: Each PM or PIC was given an aged accounts receivable list of his projects. They were tasked with contacting every client by phone or e-mail on a weekly basis. During contact they were to find out how the project was progressing, ask if there are any issues with services provided, ask if client expects additional services for out of scope items, determine if billing has been received and when the account balance will be paid.
I met with PMs and PICs on a bi-weekly basis in a round table format so that everyone was made aware of the groupís progress. We went over each and every client project, noting payments, promises to pay and assigning action items for the next meeting. At the end of the third bi-weekly session we began to see real results.
Routine Telephone Calling: A mid-level member of the accounting department was given a list of the previous monthís invoices over $2500.00 and tasked with contacting clients to ensure that their bills had been received and that it was in for payment approval to meet stated contract payment terms. These outcomes were also tracked and followed up as neycessar.
Year-end Collection Initiative: On or about December 1 we sent out a balance confirmation letter to selected clients. This effort was supplemented and supported by the foregoing PM and PIC duties.
PMs and PICs more responsible for their entire projects from start to finish, and help tie their project profitability into year-end company bonuses.
Clients were made aware of payment responsibilities.
Mechanism was set up to deal with slow paying clients.
Established year-end internal collection program which exceeded expectations 2 consecutive years
Year 1 actual results were 112% of target
Year 2 actual results were 118% of target
Reduced bad debt ratio by 70%
For similar results for your firm, contact us.
A.I. Consulting, LLC is a Credit and Collection firm serving over 250 Architectural and Engineering firms in Pennsylvania, New Jersey, New York and Delaware.
Andy Harmelin, President can be contacted at (610) 667-3422, or firstname.lastname@example.org for any inquiries.