Like dentist appointments, nobody likes to make collections calls. But just as regular dental checkups are necessary to good health, collections efforts are essential to the health of a business.

In the AEC industry in particular, good collections policies require everyone in the firm to be vigilant year-round. Unfortunately, many companies don't handle collections well, and lose sight of the fact that collections is really a continuous process. Making sure you get paid on time begins well before a past-due notice is sent out.

Make sure terms are understood
Some collections issues are the result of misunderstandings between a firm and the client about payment terms. I've seen cases where a firm has an informal agreement with the client's project manager to be paid every two weeks during the course of the project. After the client is late with a couple of payments, the firm finds out that the PM did not have the authority to make such an agreement! The lesson here is to get everything in writing and make sure you're making the deal with the right person.

You've got to make sure that the payment schedule, not just the value of the contract, is spelled out up front in writing. Make sure that the payment schedule meets your cash flow needs. You don't want to be in a tight cash position that jeopardizes your ability to meet payroll and other operating expenses. That may mean negotiating with the client over payment terms. Don't be hesitant to do that if necessary. You don't want to be in a situation where your cash shortfall forces pressure on your customer because you made a bad business deal. The last thing a client wants is for a business partner to go out of business during a project.

Another simple issue that delays payment a surprising number of times is when a firm's billing department isn't aware of the client's billing procedures. I've seen bills sent to the wrong address-a warehouse rather than office headquarters, for instance-more times than you would believe. It's also important to know the accounts payable manager's name, and to make sure that you include the correct project number on the invoice. Make sure you know the approval steps required to get paid. Simple errors like incomplete or incorrect invoices can delay the payment process. These types of mistakes are also very embarrassing.

Collections calls
Even when an account is past due, many people don't like to ask for their money. Some are afraid to alienate clients by calling what may seem as too often or too early. Salespeople, in particular, are notoriously reluctant to make collections calls. They are afraid to jeopardize their relationships with clients.

A company I know counteracts that reluctance by revoking commissions if payment isn't collected within 90 days. Even then, some of their salespeople are still hesitant to make collections calls.

Upper managers, even in small firms, are also resistant to making collections calls. Some think this is beneath them or makes them seem unprofessional to the client. But when the client isn't living up to its obligations, you are certainly justified to ask them to pay up.

The key is to be persistent, but diplomatic. Experience helps, as you have to try to sense what the client's motivations are and balance that with their payment track record. Is their current late payment situation a rare occurrence due to a temporary cash crunch, or are they persistently late and can be expected to drag things out again? You have to sense when to be a hardliner and when to be more lenient. This is something you don't get out of a textbook.

When a client ducks your calls, that's almost always a sign that there is something seriously wrong. When that happens, I get more aggressive and call more often.

Training and oversight is critical
A big error that some firms make is to leave collections in the hands of an untrained, inexperienced person. This may not only be ineffective to getting paid, it may also damage the client relationship, as the untrained person may get flustered and say things that are, shall we say, well short of diplomatic.

Managers should have oversight over whoever is responsible for collections. Otherwise, it could be several weeks before anyone notices that the person doing collections has not been making any headway in an important collections assignment.

It's ultimately up to high level managers to ensure the collections process runs smoothly and efficiently. Otherwise, the business will certainly suffer.


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Nick Martorano is a business management consultant and strategist. He can be reached at nbm@martorano-assoc.com.