In a strong economy, many businesses become overly relaxed about their cash flow management, including accounts receivables.
But a massive and sudden economic downturn like the pandemic results in unstable supply chains and late payments, which can quickly put any business on the chain in crisis.
In order to survive and thrive in the future, businesses will need to review accounting and practices carefully, and possibly revise contracts with key partners and vendors. Obtaining legal counsel about contract review, risk management, and other business issues is an essential part of getting rigorous about all elements of your business. Don’t wait for a problem to develop before you hire a business lawyer. Address the business law issues upfront, so you don’t have business legal issues down the line.
Communicate with Teams and Customers
This involves getting a clear understanding of how to deliver timely and accurate invoicing, encouraging proactive payment plans, and reviewing and revising contracts.
You can also update your procedures for accounting and customer service teams, and ensure that everyone is updated about topics like:
- How to update forms
- Shifting collections strategies
- How to protect guaranties
- How to respond to inquiries and when to elevate
- Clear communication about due dates
- Evaluating credit status of new customers previous to onboarding
Depending on what types of customers you serve and how diverse their businesses are, you may want to consider developing different types of payment plans for different customers.
Ask for Cash Early
When you create a system that is precedented on either deposits or cash on delivery, you essentially teach your customers to get into better payment habits.
This might include things like asking for advance deposits or asking for cash on delivery.
Businesses may also want to encourage the use of online payment portals which makes it easy to transfer smaller payments.
Ensuring transactions take place ahead of time not only serves your own business but will help customers to better manage their own accounts payable.
It also minimizes the chance of error and lightens the load on accounts receivable personnel.
Conduct an Accounts Receivable Audit
Carefully reviewing and updating your terms on contracts is an essential aspect of ensuring that your accounts receivable processes are effective going forward, and to minimize risk.
Take a close look at contract items such as:
- Terms of Condition of sale
- Invoice timing and delivery
- Purchase order processing
You can take this time to reflect on current practices and offer more regimented systems to keep customers paying on time.
Watch this video to learn more about business and marketing during COVID.
Guaranty of Payment
Having a guarantor to ensure that the payment will come through is a way to ensure that some payment will be made if the debtor fails to pay in full.
A payment guaranty effectively requires payment from a guarantor without a lawsuit or other legal repercussions.
A guarantor is usually someone related to the main customer but who has proven their net worth to cover a given amount should payment be missed. For instance, a general contractor might need to shoulder the debt if one of their subcontractors can’t pay.
Learn more about business financing during the pandemic.
Implement Security Agreements
Accounts receivable processes can almost always benefit from stricter security agreements which center around security interests.
Security interests, which can be real estate or other assets such as equipment, help to ensure that the creditor has the right to seize an agreed-upon selection of a debtor’s assets in order to discharge the debtor.
This reduces the risk for lenders and improves incentives for payment.
Rules for security interests vary between states, but typically the debtor must offer the creditor security interest in the initial contract.
Get Legal Help to Manage Accounts Receivables
In these unprecedented times, it’s important for businesses to employ strategies that meet their own unique set of needs — and it’s not a time to take risks by, for instance, revising a contract in such a way that could cost you in the future.
This is a time to reconsider the way you manage all sides of your accounting so that you can stay stable through figure economic ebbs and flows, manage risk, and clarify relationships with customers.
If anything, this crisis will hopefully teach businesses why it’s important to keep strict A/R practices in place, even when the economy is booming.
If you need extra support with your business during the pandemic, we’re here to help.
Call us at 303-780-7333 for a free 30-minute consultation, or schedule an appointment today.
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