Business Triage: Accounts Receivable Strategies

By Trip Holmes

It’s natural for entrepreneurs who’ve built successful middle-market companies to think they can grow their way back out of a downturn like the one we’re facing with the COVID-19 pandemic. And while bolstering revenues is certainly a cure for many problems, what happens when your market greatly diminishes, and you’re forced into survival mode?

There are many measures you can take to protect your business while revenue is down. In our last couple of article, we discussed your options with regard to your corporate debt, including loan modifications and loan workouts, as well as your company’s potential for spinning off non-essential assets. Today, let’s take a look at perhaps the least savory topic in all of business: collecting on your delinquent accounts.

It’s Part of Your Job as a Business Owner

If you’ve never had a delinquent account, I’d be willing to guess you haven’t been in business very long. At some point, virtually every business will run into a customer that’s slow to pay, unwilling to pay, or unable to pay. Thankfully, in most lines of work, delinquencies comprise a small percentage of all of your cash flow. When times are good, many of us are more apt to “let things slide,” since asking your delinquent customers to make good on invoices is never something that makes us wake up and think, “THAT’S what I want to do today!”

But as with looking at your own corporate debt flexibility and looking for hidden value in non-core assets, it’s incumbent on you as a middle-market business owner to shore up your accounts receivable in order to weather a downturn and position for future success. Sometimes, you have to roll up your sleeves and do the dirty work!

Adjust Your Attitude

Being a savvy collector means walking a fine line between being too harsh and being to lenient. I’ve always thought that the business owners who were best at this task put the same amount of thoughtfulness and effort into managing account collections as they do at developing customer relationships during the good times.

Putting this knowledge of your customer to use will help you summon the right tactics. Some may need to be gently reminded, while others require the “straight sauce” It’s important to be flexible and mindful of the challenges they are facing—remember, we’re in a downturn with few precedents, and it’s more than likely affecting them, too.

Keep It Legal

It’s important to know your rights as a business owner, with regard to collecting on delinquent accounts. As with any other endeavor with legal implications, you should work with your legal counsel to know the full extent and limits of the law in your state. Failure to comply could make you wish you’d just written off the debt in the first place—don’t make that delinquent account more trouble than it’s worth.

If you cross the line into harassment, with tactics like multiple calls a week or even daily, or unwanted visits to your customer’s place of business, you are more than likely in violation of some kind of law protecting debtors’ rights.

Make Hard Decisions

As you know, almost nothing in debt collections can seem straightforward. Taking care of these matters often requires that you make hard decisions. These decisions can be whether to end collection efforts and write off the debt as uncollectible, or if the amount justifies, take legal action against your customer.

Remember, you don’t need to make these decisions fueled by emotion. Instead, think about each decision from multiple angles. The cost of collection often far outweighs the benefit of your customer making good. Sometimes, you’re doing your business a bigger favor by taking that write-off.

Here’s one final thought: shoring up your accounts receivable, like practically any other aspect of running your business, takes strategic planning and execution, whether you’re up to that latter piece or need to outsource to a collection agency. Never shoot from the hip.

Do you need help with tightening up your A/R and other aspects of your business to weatherproof for the downturn? Contact us at Sabre Capital today, and let’s get started back on the road to success.