Shrinking accounts receivable

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Shrinking accounts receivable

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Dec 01, 2005

I'm tired of having a huge pile of accounts receivable. How can I manage this better?

"Letting your accounts receivable grow large is like extending a loan to all of your clients," says Dr. Emily Williamson, owner of Sixth Day Veterinary Practice in Bargersville, Ind. "Most people won't loan their friends or family members money, so why would you loan your clients money?" Dr. Williamson recommends revamping your policy to require payment when services are provided.

First, she says, you need to tackle your outstanding accounts. So tabulate the names of all the clients who owe you money, along with the date they were billed and the amount they owe.

Address the most overdue accounts first, sending a polite letter that says you expect payment within 30 days. Along with this letter, she says, include a copy of your new policy, stating that you're no longer able to extend credit and payment is due when services are rendered.

Struggling to make the change? Dr. Williamson says to focus on these issues:
1. You need to feed your family.
2. You need to cover your overhead every month. After all, you're running a business, and all businesses need cash to keep running.
3. People who don't pay won't be there for you when you need the money.
4. Not collecting sends a message to clients. They think, "I'll call Dr. Doesn't Collect because I'll get away with not paying my bill."

"So plow through your accounts receivable," says Dr. Williamson. "Gently remind your clients about their debt, explain your new policy, and stick to it."

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