Let’s Talk About AR
Hiiiii First name / friend:
Sometimes the work that I do with business owners is undecidedly un-sexy.
It doesn’t cause the immediate revenue jumps.
It doesn’t lead to big flashy ROIs or bottom line improvement.
I’m working with one client right now that runs a very successful firm with a fantastic professional reputation.
She didn’t come to me with any major issues aside from there being more work in her office than she could churn out. << This is a very good problem to have, btw.
So instead of fighting fires for the first few months of our time together, we’ve worked on key stuff like drafting a really solid accounts receivable (or “AR”) process.
(Don’t press the exit button to this blog!!)
Why is drafting and implementing a strong AR process so incredibly important?
Well, do you care about:
Getting paid in full
Getting paid on time
Lots of repeat clients
My guess is you answered “yes”.
If so, you’ll want to know that managing your AR is one of the big keys to managing your cash flow in a way that allows you to meet your operating expenses, invest in growth opps and ultimately avoid cash crunches.
And for my client - a big part of managing her AR relates to scaling successfully.
As her biz grows and scales, we want to ensure that her cash flow keeps up: aka we want to do our very best to match up her increase in expenses (from her team doing more work) with an increase in cash flow / revenue.
And if you’re reading this and you’re like -
“My AR is fine. I have a small balance there, but my clients generally pay on-time aside from 1-2 delinquents”
I see you.
And I’d say that you’re right…. If you have no plans to grow and scale your biz, you might be okay with having an average AR balance that’s 30% of annual revenue. That may be fine for your one-person firm (although I would have trouble sleeping at night). But when that doesn’t work is when you add team members, new tech or other new expenses while you’re engaging in an organic or inorganic growth strat (aka scaling your biz).
I’ve seen first-hand businesses managing 6 and 7-figure AR balances and, believe me, it can get real ugly, real fast - aka way more cash going out the door than is coming in. Not good.
So, where do you start?
Well, here’s what your AR process should include:
Detailed, timely invoices with clear payment terms (due dates and interest rates on overdue invoices).
Payment reminders—automated or manual—at set intervals to keep overdue invoices top of mind.
Monitoring and reporting using AR Aging Reports to flag overdue accounts regularly (I recommend weekly).
An escalation plan for overdue accounts. Yep, no one wants to go there, but when invoices hit 90 or 120 days overdue, firm action is often the only way to get paid.
That’s it for today! I hope this blog helps you take the first step towards creating stronger, more reliable cash flow.
Chat soon!
TB