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Collection Prevention Part II

Accounts Receivable Collections

Collection Prevention Part 2

The series, as the title suggests is all about “collection prevention” stop collection problems at the source, which unfortunately is often you and your company.  It’s my contention, after 30+ years of making AR collection calls, that a full 70% of collection problems are preventable, and you are the one who can prevent them.  (For a discussion on how to deal with the other 30% check out our Accounts Receivable Collection Manual – How to Clean Up Your Receivables and Collect Your Money NOW!

In Collection Prevention Part 1, I talked about getting complete contact information during the sale or at least before you actually ship anything or provide any service.  If I were going to go strictly in order I’d probably have to talk about checking credit at this point.  You should of course, if the order warrants it, and we’ll talk more about that later – but I want to talk about invoicing first.

Invoicing errors cause collection problems.  I’m going to go out on a limb here and say that more than 1/2 of the collection problems I see arise from invoicing errors.  Here are some of the most common problems I see.

Common Invoicing Errors

  1. Late Invoicing – Invoice on time and within a day or so of providing service or shipping. Customers often take late invoicing as an invitation to pay late –
  2. Create the invoice but don’t send it. This happens more these days when we’re often emailing invoices. We don’t stop at the end of the day and take the stack of invoices down to the mailbox.  Remember to send the invoice!
  3. Wrong address or email – read Collection Prevention Part 1 – it’s all about getting good contact information.
  4. Wrong date – Use the date service was provided or product was shipped not the day you happen to be doing the invoice – if you invoice on time this probably won’t come up.
  5. Send the invoice to purchasing – It’s not uncommon for the only available information to be for purchasing. They may or may not pass your invoice on to accounts payable.  Assume they won’t and at least send it to both.  Even if purchasing needs to approve the invoice AP will track them down for the approval.
  6. Insist on mailing when they want email or vice versa. We need to cooperate with our customers systems and provide the invoicing the way they want to receive it.
  7. No information on the invoice – Most people won’t pay an invoice without details of what it’s for – provide that information in front instead of waiting to be asked.
  8. No invoice number or unwieldy invoice number – Make it easy! If they can’t enter it easily or find it easily it’s going to hold up payment.
  9. Duplicate invoice numbers – You’re just not going to get paid. I haven’t seen a system yet that can accept them.  Duplicate invoice numbers are confusing and generally lead to one of them not being paid or having to redo the invoice.
  10. Wrong merchandise listed or shipped – If you ship the wrong product or list the wrong product on the invoice you’re not going to be paid on time.
  11. Purchase Order Errors – any PO error is going to hold up payment
    1. No PO listed on the invoice
    2. Wrong PO listed on the invoice
    3. PO doesn’t match the invoice
  12. Payment Posting Errors
    1. Not posting payments at all
    2. Posting payments late
    3. Posting payments incorrectly
    4. Pay the oldest invoice first instead of what’s listed on the remittance advice. Do this often enough and you’ll never be able to unwind it. Even the IRS has to pay what the taxpayer says they are paying.

Avoid as many of these errors as you can and you’ll find most of your collection problems will disappear.  Click here for a PDF version of Common Collection Errors.

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