In the current economic climate, the old cliché “cash is king” could not be more relevant. Receivables are only as good as receipts.

Are there any secrets to impart? No, just ways and means to assist in the process.  

The essential points are that:

• Each customer relationship must be approached on an individual basis. Specific circumstances must be considered and addressed. Centralised systems may have their place in certain operations but are not always helpful or effective.

• There can be no standard mechanistic way of operating which removes responsibility from the account handler who actually manages the service.

• The overall process for each account must be designed specifically and handled consistently. The ball must not be dropped.

Assessing relevant factors

It helps to consider some fundamental issues. Why are invoices paid? Why are payments not made? Consider from your own personal point of view.

Why do you pay bills?

There are number of reasons:

• You really want to pay the supplier. Or at least you expect to pay the supplier and are not surprised at being asked to pay the supplier. You wish to maintain goodwill with the supplier.

• The supplier will withhold goods and services if you don’t pay.

• You have provided funds on account or direct debit, so the process of payment is easy.

• The process of payment is easy anyway.

• The supplier reminds you on a regular basis and you realise that it’s best to pay up now.

• The supplier will take legal proceedings and you have no appetite for litigation or being a judgment debtor.

Why might you not pay invoices?

• You can’t afford it.

• You have a genuine dispute or complaint which you want to resolve.

• You are happy to put the whole thing on hold; to kick it into the long grass until the creditor actually reminds you and exerts a bit of pressure.

• You didn’t expect the invoice, are surprised to have received it and don’t understand why it is so large.

• You may want to utilise any or all these factors to negotiate a discount or a deferral.

• The process of making payment is not particularly user-friendly.

• And, very rarely: you never received the invoice, or you have forgotten about it (because you received it in some sort of opaque manner) and have never been reminded about it.

Planning for successful cash flow

So how to improve the process? It’s really not rocket science. You need, so far as you can to:

• eradicate the scope for objection; and

• create an easy pathway towards payment.

Basic preparation

Conduct credit checks. Don’t work for somebody who looks likely to be unable to afford it. Get funds on account. Or explore alternative funding options if indeed these are available.

Tight agreement

Ensure that the initial services agreement makes quite clear the basis on which charges will be made, when they are payable and that work can and will cease if payment is not made regularly.

Doing a proper job

Manage expectations. Try to eradicate any basis for complaint or counterclaim. This is not easy but it involves doing the best job you can in a careful and competent manner.

Avoiding surprise

Ensure that the customer is not going to be surprised when the invoice is received.

Have some sort of system, tailored to the circumstances of the individual customer, which makes sure that:

• the invoice has been sent to them;

• they know that they have been sent it and why it has been sent (preferably because they have agreed it);

• they acknowledge they have received it, and agree to pay it.

And it should remind them on a reasonably regular basis appropriate to their specific individual circumstance and what they have actually acknowledged.

If well set up this process can be invaluable in dealing with any issues.

To drill down here, the process of delivery is important. Some people, who will happily communicate by email for normal purposes suddenly become all formalistic and coy when actually it comes to sending out invoices.  

It may be desirable in certain instances to send a nicely printed and signed invoice on engrossment paper in a typed envelope. However, be thoughtful: if the recipient is in fact someone who may not be used to processing paper in such a way because everything else in their life and business is digital, you risk that piece of paper getting overlooked, filed, forgotten and ultimately lost. That helps no-one.

Tie into customer’s preferred processes

If you don’t know the customer’s processes, find out and exploit them. If invoices need to be dealt with in a certain way to be processed, find out and do it. If a “purchase order” reference is needed, get it and use it.

And make payment easy. Communicate bank details. Do not necessarily ask for “… a cheque in settlement in due course”. Unless of course those are magic words that you know will do the trick.

Business-like conduct

If there is any sort of “can’t pay yet because of cash flow” issue, use any concession you make to extract an agreement as to what precisely is agreed to be due and precisely when it will be paid.

Be prepared to cease work or terminate the relationship immediately there appears to be is a potential problem. This should be on a responsible basis, obviously. The maintenance of funds on account should preferably not be allowed to slip: the initial request may have been underestimated and the customer should be carefully and sensitively educated.

Conclusion

Of course, some of these structures may not survive contact with the messy real world where customers can be difficult, unforeseen events occur and professional sensibilities and the desire to help someone out of difficulty may put the whole thing off course.

However, the right systems and approach may ensure that the customer pays with pleasure and gratitude. And the ultimate sanction, legal proceedings and threats of enforcement will remain very much a last resort but very much primed and effective if necessary.

In summary, each customer and circumstance is different and one size does not fit all. Nevertheless, careful planning and bespoke consideration are indispensable.

I originally wrote this as an internal guide for lawyers, referring to “clients” not “customers” and possibly highlighting some shortcomings in the cash recovery management process which are unique to lawyers. However, I have expanded its generality so far as possible. It can obviously be reverse engineered for the legal industry. 

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