5 Steps to Faster Receivables

Wondering how to improve cash flow for your small business?


Small Business Cash Flow. It’s the lifeblood!!

For service-oriented small businesses, disciplined accounting is the heartbeat. Cash flow keeps the heart beating.  Lack of cash flow causes heart palpitations. Sustained lack of cash flow causes heart attacks. Experience enough heart attacks and the business will die.

In our experience, the two biggest challenges to accounting are rhythm and resource. The small business owner must develop a disciplined rhythm of accounting: get paid on time (accounts receivable), pay your bills on time (accounts payable). The cash flows in. Then the cash flows out. And it’s got to happen in that order. Pretty simple, right? But it’s hard to develop that rhythm if you don’t have resource. Somebody somewhere must do the accounting work.

If you’re still in startup mode, you’re probably going solo. It’s all on you. The pressure is immense, and it keeps you awake at night. You’re the only resource. And you have to create and keep the rhythm. This is not a commercial or click bait for any accounting organization. So hear us when we say that the best and first money you can possibly spend on a human resource is for outsourced accounting. It doesn’t have to be a first employee. But it does need to be somebody else other than you. What should you do until you get somebody else? You should understand the top five reasons why your customers may not pay you on time, or perhaps at all. Then you should understand the best practices that will overturn each of those five challenges.

Top 5 reasons clients don’t pay you.

So why don’t clients pay you on time, or at all? We’ve found that very few clients are stubborn about paying their bill. We’ve encountered less than a handful who are truly irrational and unethical. They understand clearly that they wanted our services and are therefore, willing to pay for them. However, we’ve also learned over many, many years that customers and clients, in general, are slow to pay, and sometimes legitimately reluctant to pay, for five simple reasons:

  1. They never got a bill.
  2. They don’t know what they’re paying for.
  3. The wrong person got the invoice.
  4. They don’t know the best way to pay.
  5. They simply need a reminder.

All of these reasons are common sense. But as a business owner, you are extremely busy. So here’s a solid, dependable rule of thumb: always remember that your clients are just as busy as you are. They are facing the same challenges in their business that you are in yours. Therefore, you want to make it easy for them to pay you, and to do so as quickly as possible. Let’s explore each practice. Then I’ll offer another bonus practice or two, just in case of emergency.

How to Improve Cash Flow for your small business

It is not a 100% guarantee. It is based on common sense and people smarts. Here we go!

1. Send Your Invoice Within 24-48 Hours of Job Completion

One franchise I worked with years ago was experiencing cash flow seizures.  It turned out that he had over $700,000 in work he’d never invoiced. You can’t get paid if you don’t send an invoice. It’s that simple. He blamed it on his office person. But you can’t expect what you don’t inspect.

Our experience has shown that more often than not, invoices don’t get sent because there’s not an established workflow or process.

  • Employees may forget to completely fill out a work order.
  • It slides between the seats in the vehicle.
  • It never makes it back to the office.
  • Maybe it never makes its way to the office person responsible.
  • Maybe they don’t actually know who to give it to.
  • Then there’s the paper-based approach versus the digital challenge.

In the end, a clear workflow gets the entire company following the same plan. When this happens, one person’s action will trigger another action. The employee will complete his work and notify the right next person. That employee will enter the work into the invoicing system and notify the next person. The next employee will do a quality assurance check and send the invoice.

Rhythm comes from a process. A process is built on workflow. Workflow usually requires coaching. Aculign can help improve your cash flow.

2. Send Clear & Explicit Invoices

Many companies don’t pay on time because they simply don’t know what they’re paying for. You must be professional and clear in your invoices. This reduces and eliminates flags. This is especially true if you’ve billed a non-profit. Due to internal policies, they may scrutinize an invoice more closely.

Here are five ways that flags are raised when the AR department of your client is reviewing your invoice. The best assumption you can make is that any flag or combination of flags raised will result in your invoice being placed in the “Do Not Pay” stack. It’s not personal. It’s just business.

  • Unprofessional invoices

If your invoice does not look professional, it will be flagged for questioning. Nothing says “suspicious” more than an invoice that appears to have been generated on a typewriter, drawn with a pen and a ruler, or drafted like a letter on a word processing computer application.

There are countless free templates for DIY invoicing. Find a few. Show them to other people in your network who own businesses or work in accounting. Quickbooks and other online accounting tools have editable invoices. Some accounting services start at just $5 per month. Show them to any accountant friends. Ask them what they think. Pick the one they tend to agree on. If you’re using an online accounting system (which you should be, by the way), you can choose from several templates. Again, ask your network. Don’t forget to upload a professional image of your company logo. Modify other colors in the template to match your company logo. In short, make it look like something YOU would be most likely to review and pay quickly.

  • Inconsistent or inflated quantities

If you bill by the hour, then bill the time you actually spent. Does a contract or agreement your customer signed beforehand allow you to round up your billing to the nearest quarter hour? Bill the exact time anyway. (It’s just a recommendation.) Underpromise and over deliver. It builds integrity. Then later you can round up your pricing when you’ve earned that trust.

Are you billing for materials? Again, have integrity. Throwing in a few extra items in that line on your invoice that you know no one is going to go back and review is dishonest. It reflects an internal practice that will come back to haunt you in other ways. That’s guaranteed.

  • Unclear or unsubstantiated pricing

Did you give an estimate before you started the work? Then stick to the pricing. Changing up your pricing is one of the fastest ways to make sure your invoice goes to the “Do Not Pay” stack.

Also, be sure to include any required taxes or discounts. You don’t want to forget to include the appropriate taxes and then have to go back later to try to recover them. That makes you look unprofessional. Equally as important, don’t forget to include any discounts that were discussed, promised, or estimated.

  • Lack of sufficient description for each item

If your client doesn’t know what work you’ve done, they will be less likely to pay you. And the more human layers of separation there is between the person who ordered the work and the person who’s paying the bill, the more confusion is bound to occur. More often than not, the person at your client’s location who ordered the work is not paying the invoice. So reference that person’s name as well as an appropriate description of the work performed.

How much description should you provide? Remember the “Baby Bear Rule” from the Goldilocks story: not too much, not too little, but just the right amount. If you say too much, it takes too long to read and will probably get delayed. If you say too little, it seems suspicious and will probably get delayed.

  • Not saying what you mean, and meaning what you say

Do you have clearly established terms and conditions, late fees, interest fees, and discounts? State them clearly in the invoice. Don’t make the font too small. Everyone in the universe hates fine print. And don’t use “legalese.” Everyone in the universe also hates having to decipher legal-speak. Except for lawyers of course.

Now you have to follow through. If you said what you meant, then mean what you say. If you sent the invoice within 24-48 hours and they are late on their payment, include the late fee on the next invoice. Does an interest fee apply? Put it on the next invoice. Did you promise a discount? Include it.

The point is this: whether it positively or negatively impacts them, failure to follow through with what you said on your invoice creates integrity problems for you. If you owe them money via discount and don’t include it, they will think you’re trying to rip them off. If you state you have a late fee but don’t follow through, they’ll know they can use that against you later on when the time is right.

3.  Send Your Invoice to the Right Person

This one needs little explanation. It’s often the simple things we see that result in significant process delays. Sending the invoice to the wrong person is the fastest way to make sure it doesn’t get paid.  (And if you send it to the wrong person, and it doesn’t get paid on time, you can’t turn around and include a late fee on the next invoice, by the way.)

When you’re working with the person who’s ordering your services, make sure to ask one important question: what’s the contact information of the person who pays the bills? That includes the first and last name, invoice address (sometimes it’s different), email address, and phone number with a direct extension.

4. Clearly Communicate the Best Payment Method

When customers don’t know how to pay an invoice, delays are inevitable. Make sure your preferred method of payment is prominently displayed on the invoice. This draws a fine line. On the one hand, you want a payment method that puts money in your account the fastest. On the other hand, you also want a payment method that suits your customer best.

Along those lines, credit and debit cards work best for you. The money will hit your account faster with this method. But many, if not most companies still pay by check. That method is pretty standard for accounts payable processes. Talk to your client’s accounts payable department and discuss their payment options. In an ideal world, your standard method for accepting payments, and their standard method for paying invoices will align. When it’s not ideal, deciding to be the stick in the mud will raise a flag and ensure your invoice payment is delayed. Choose your battles wisely. Getting paid the way you want may not be one of those battles you want to fight.

In an ideal world, your standard method for accepting payments, and their standard method for paying invoices will align. When it’s not ideal, deciding to be the stick in the mud will raise a flag and ensure your invoice payment is delayed. Choose your battles wisely. Getting paid the way you want may not be one of those battles you want to fight.

Since credit and debit cards are a mainstay nowadays, be sure to indicate two important pieces of information: which cards you take and don’t take, and a link to go to the payment page. If you take checks, clearly indicate the address where you want the check to be mailed. E-checks are also an option these days. This allows your customer to pay you by check, but electronically with their routing number and account number. Often times this meets their standard policy while ensuring you get paid faster. Whichever method you Make it easy for them to know what to do

Do you take wire transfers or offer EFT? Again, be explicit and simple about how to use those methods. The point should be pretty clear: whichever methods you decide to take payment, make it easy for them to know what to do.

5. Create Recurring Payment Reminders

The last best practice perhaps the most important. The employees in the accounts payable department of your customers are human beings. That means they will make mistakes. Your invoice is not the only one they are processing. No doubt you feel that it should be. But it’s helpful to ask yourself one important question: how do I pay my own bills? The answers may vary. But the premise is the same. You sort them by when they’re due. Then you set a day(s) each week to review and pay the bills. Paying those bills are, of course, just one of several financial activities you do in your household.

Paying those bills are, of course, just one of several financial activities you do in your household. Sometimes you may forget to pay a bill. Things happen. And when they do, your electric, cable, water, natural gas, the internet, or car insurance vendors are happy to remind you that you’re late. Late notices get attention. They probably get yours, right? They will probably get your customer’s attention, also.

Late notices are one way to send a recurring payment reminder. Another way is to send a monthly statement on a specific day of the month. Doing it this way adds another important layer to your accounts receivable, but in a way that standardizes your approach with all your customers.

Alternatively, you can take a more personal approach. For example, consider setting a recurring reminder to spend a few moments once a week to send a personal email note to each late customer. This approach allows you to keep a personal touch. In turn, your customers view you more as a human rather than an account number that needs to be managed.

Similarly, you can send a Thank You card to both your customer contact and the key contact who pays the bills. This can have a double-edged effect, as your customer contact not only gets the point but also communicates directly to accounts payable to follow up. Again, this establishes you in their mind as a person instead of a piece of paper.


More often than not, the simple things are those that will cause problems. You are a small business, service-oriented business. You already know these things well. And no doubt, the simple details about the quality of your work are above average and make you stand out. This is how you are differentiating yourself in the marketplace right now. It’s why you are still in business!

However, you are also so busy doing the work of your business that you want to refocus on the business your work produces. Sending invoices in a timely fashion, and making common sense steps to ensure timely payment and collection are keys to healthy cash flow. Don’t lose sight of these important details as well. Quality matters just as much in making sure you get paid as it does in doing the work that will ultimately pay you.

The foundation underneath any healthy cash flow is an easy-to-manage workflow. That means creating the process and steps necessary to make sure nothing is left out. It also means figuring out how much you are willing to manage manually and automatically. Aculign offers a full spectrum of help with a variety of service-sizes to fit your budget and need.

  • X-Small: Attend the next public workshop on the subject for a nominal fee.
  • Small: Request some dedicated time to help you design your accounts receivable and collections workflow.
  • Medium: Talk to us about accountability coaching. We can help you stay on track until you feel comfortable on your own.
  • Large: Meet with a team member to do some full-scale vendor discovery for outsourcing.
  • X-Large: Connect your accounting department with an Aculign team to work together on a full-scale revamp.

No matter what you need when it comes to getting paid faster, we are ready to help.

2 Metrics for Improved Receivable Management

Cash flow is an accounting term that basically describes how the company makes and/or obtains money (Sources) and how the company spends money (Uses). SOURCES can be from Clients, investors, debt, donations, etc. USES can be anything from purchasing supplies to paying your local power bill. Anytime money goes out the door is a USE from a cash flow perspective. So, what are some good ways to make sure you can measure some of those sources and uses of money? In this series of posts, we will discover several different ways to measure and manage cash flow.
For this post, we will dive into Receivables Management. While there are many great ratios and indicators that can assist you with managing receivables, we will start with 2 great metrics: Receivables Turnover Ratio and the Average Collection Period. The good news is that your accounting tools should be able to provide this information very easily.

Accounts Receivable Turnover:

The Accounts Receivable turnover tells you the number of times per year that your business collects its average accounts receivable. This ratio helps companies evaluate how efficient they are at issuing credit and collecting funds from its customers in a timely manner. A high turnover ratio indicates the company’s collection department is seeking payment, the company’s credit policy is being followed and can even indicate the quality of the customers.

How do you measure this?

AR Turnover

Let’s look at an example:

During the first half of the year, a landscaping company has a total Net Credit sales of $1,000,000. They had a beginning accounts receivable of $400,000. At the end of June, 180 days later, they had an ending accounts receivable balance of $300,000.

Let’s put this formula to the test:

AR Turn example

In summary, the landscaping company was able to collect the average receivables almost 3 times in 180 days. While this is great information, your next question is how long does it take me on average to collect? This is also called the Average Collection Period.


Average Collection Period:

The Average Collection Period tells you on average how long (in days) it takes to receive money from products or services you have invoiced or credited. In this ratio, a low number is better because it means it has fewer funds tied up in what people owe, thereby allowing the company to invest in other things that will help them grow.
Lower the days that people owe, the more you will have to transform and grow. – Keith Minick

How do you measure this? The formula is:

Average Collection Period

Let’s look at an example:

Continuing with the example above, the Accounts Receivable Turnover was 2.86 times. Since we measured the first half of the year, we will make the total number of working days at 180.

Let’s put this formula to the test:ACP Example

In summary, this landscaping company may have a problem receiving money for services and products rendered. It takes on average 63 days to collect sales from credit accounts. This could create significant cash flow problems and limit its growth.

Some disadvantages to low receivable turn and high collection periods:

There are many disadvantages of allowing your customer account receivable balances to age longer than thirty days especially if your customers are not companies.  The longer you take to collect, the chances of writing the account off is increased.  All families come into hard times, and may have cash flow problems themselves.  It is better to communicate in a positive way and in a diplomatic way ask when you can expect payment.  If they don’t hear from you, your bills go to the bottom of the pile or possibly in the trash.  It is a good idea to rigorously manage your receivables. The success of your business and its ability to grow depends on it!

Some recommendations to improve your turnover of receivables:

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  • Offer a discount for early payment. For example, if services are paid one year in advance, the cost of the services are decreased by 5%.
  • Build incentives to your employees based on collections made within the 30-day period. Example; A $50 bonus each month if your current receivables are 85% of your overall receivable balance.
  • Build your commission policies in a format that only pays commissions when the accounts are paid in full. This gets your sales people involved in assisting with collections.
  • If you don’t have a collections policy, build one. You will need to educate not only your staff but also your customers.
  • Assign late fees.
  • Consider hiring a collection agency once your receivables cross a certain threshold.
  • For some product and service oriented customers, you may want to consider bringing the point of sale to the customer. Products like Square, allow you to plug into any mobile device to collect payment right when the service or product is rendered.
  • Consider stopping all service for a client with receivables past a certain time period.
We wish you the best as you navigate your accounts receivable. We hope this has been helpful. If you have any questions or comments, please feel free to contact our CFO, Ron Minick at Ron.Minick@aculign.com. In continuation of the series, next week we will explore ways to measure and manage your payables.

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