Accounts Receivable: Six Steps to Managing Customer Collections


It doesn’t make any difference what you think, a sale isn’t a sale until you collect the cash.  Trust me, the best (and in my mind, the ONLY) way of paying commissions is after the cash is collected. The sad tale is that everyone is chasing the sale, but fewer business owners are chasing collections. And, what do you call a sale in which you don’t collect on the invoice? It’s charity. It’s a gift to the customer. You paid for it, you sent it, and they didn’t even say thank you. 

So, how do you make sure that you complete that sale – that you collect that cash?  Here are 6 critical steps to follow:

  1. Establish a Credit Policy – You need to take steps, upfront, to improve your chances for collection.  How do you know that they are able to pay you when your invoice is due? 
    1. How large an order will you let them place?  You want to make sure that you’re not giving them credit beyond their ability to pay.  Just like a credit card company.
    2. How soon will you expect payment?  Is it Cash On Delivery, Payment On Receipt, Net 30 days, or longer?  Make it clear to the customer what you expect, and that they plan on following your policy. 
    3. Get credit references, and don’t set a new standard.  You shouldn’t be the most generous company they deal with. Don’t give them the highest credit.  And, you need to call EACH credit reference. Just because they gave you that company as a reference, you have no idea what they’ll say when the customer isn’t around. 

 2. Proper invoicing – If the invoice isn’t correct, the payment will be delayed.

    1. Invoice the day you ship or you are losing money. For every day you delay sending the invoice, they will delay sending the payment. That’s time that the money is going to be missing from your pocket. 
    2. Make sure the invoice is correct.  The clock doesn’t start ticking until they have an accurate invoice.

 3. Call them before it’s due – especially for large orders. 

    1. Make sure they received the invoice.
    2. Make sure that it’s been approved.
    3. Make sure that it’s in process in Accounts Payable.
    4. Ask them when they expect to issue the check.  This isn’t being pushy, it’s being a good business owner.  You need to plan, and they won’t think badly of you because of it. 

 4. Don’t wait to follow up – What are you waiting for? The squeaky wheel gets the grease.

    1. If you don’t get prompt payment, call your customer.
    2. Make sure payment is in process, and ask politely when they will send the check. 
    3. If you don’t get the check when they promised, call them again to see if there’s a problem.
    4. If it still doesn’t come, call them to see why they haven’t sent it.  If it’s big enough, you might even stop by to pick up the check. 


5. If you don’t get paid – don’t wait – stay in touch with them.

    1. What is your collection policy? 

                     Do you send statements?

                      Do you put stickers on your statements?  (this is                             very ineffective. It just makes you feel good.)

      2. Call and ask for payment.

      3. Schedule future partial payments.

      4. Find out if you can stop by to pick up the check.


6. Last resort – Call a collection agency.

    1. A collection firm might charge you 20% or more.
    2. Money not collected is money lost.
    3. Anything older than 120 days is getting uncollectable.
    4. Anything older than 6 months should be written off.


Don’t wait to collect the money that your customers owe you. The longer you wait, the less likely you will get it. Create a credit policy and a collection policy before you need to chase those dollars. A solid procedure will make everyone’s lives easier. But more than that, acting in a consistent manner will be more powerful than any individual policy. If you start chasing your payments, they will come to know that you are going to do it, and they will do anything they can to keep from getting that phone call, including paying that pesky invoice.