Giving Customers a Little ‘Extra Time’ to Pay Will Lead to Cashflow Issues

RCS Influencer Thea Dudley says that not having a good understanding of your collections and accounts receivable could end up being your biggest cost of doing business.

Not always noticeable until it is too late, the biggest cost or impact to businesses that I have encountered this year is roofing contractors not keeping a tight enough rein on their collections and accounts receivable (AR).  The cost sneaks up on you in a good economy. 

When times are good, and money is flowing many companies take their eye off their accounts receivable.  They allow customers a little “extra time” to pay the account.  Before you know it, that “little extra” has creeped out to 15 - 20 days or more days past due, eventually creating a cashflow issue for your company. 

Extended terms is another cashflow killer and impact to your business, in any economy.  Your customer asks for a change in the payment terms and you generously allow the extra 30 or 60 days they requested, and it ends up playing havoc on your AR.  Unless you are getting the same terms from your supplier you are creating another unintentional cost to your business. 

Once you open the barn door for either of those scenarios it is tough to get it back under control.  You have to retrain your customers to pay you on time.  It is even harder to reel those extended terms back down.

Take a moment to review your AR and see who is trending slow and start the retraining process now. Follow up on commitments and hold your customers accountable.  The fear is always (I hear this from every single customer EVER) that you will lose their business.  You may, but how much is it costing you to carry them and what happens when money tightens up?  Will they have the ability to pay you? 

If you have given out extended terms, make time to revisit the conversation and see what was driving the need for them.  Most often customers ask to see if they can get it or keep the money in their pocket longer with no real reason for it. 

The longer your money is in someone else’s pocket the more opportunity there is for it to never make it to yours.  2019 is a good year to “reset the table” and give your accounts receivable a heath check.  Treat your AR with the same set of guidelines regardless of what the economy is doing. 

Thea Dudley is an expert credit and collections officer, having spent 30 years in the construction field working for contractors and distributors. See her full bio here.