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Are Your Profits Missing in Action?

Does your income statement show profit but your bank account doesn’t? Is your line of credit continuing at high levels? Are capital expenditures still on hold? Wondering where your profits and cash flow are?

Most likely, your profits are hidden away in your uncollected receivables. Two numbers that can enlighten the situation are:

  • Years Profits in A/R = Receivables / Annual Profits
  • Days Sales in A/R = Receivables at year-end / Average Daily Sales

Average Daily Sales = Annual Revenue / 365

Reducing aging from 200 days to 100 days would have a very big impact on your line of credit. Reducing it from 100 days to 50 days would loosen up capital for improvements, hiring staff, managing firm with consistent marketing effort or to acquire another firm.

Monitoring Receivables

Monitoring receivables and the profits sitting in them should start by printing BillQuick’s Aging reports. Aging report formats include 90-day, 120-day and 210-day aging periods and more. Most reports display information about the client, project, main client contact, phone, etc that comes handy when making collection calls. For example, print the Aging Summary for several periods throughout the year, say bimonthly or quarterly from the beginning of the year.

Aging-Report-PS

Are total receivables going up or down over time? Is it because of more or less business?

Now compare this data with the previous year’s data. Are you improving?

Calculate Days Sales in A/R for each period and compare.

The Project Journal can also be used to note collection conversations so project managers and principals can easily and quickly reference this when talking to a client.

Collections Take Diligence

In these economic times, accounts receivable must be managed with diligence. The older an account is, the less recoverable it is. As the U.S. Department of Commerce reports:

  • At 90 days, 26% are uncollectible
  • At 120 days, 35% are uncollectible
  • At 6 months, 70% are uncollectible
  • At 1 year, all the invoices are virtually worthless

Another tool you can use is a collection letter. You can run Microsoft Word-based Collection Letters from BillQuick. There are templates for:

  • First Notice
  • Second Notice
  • Final Notice

BillQuick selects the correct Notice Template and merges the data from your company database into the letter. These templates can be customized using Microsoft Word 2003 or later. When editing a template, most users change the text. After a quick scan of the letter, you can print them through Word on your letterhead. You cannot change the merged amounts or other values pulled from the database. These values can be deleted and replaced manually, but no changes are updated in the BillQuick database.

With a little technical knowledge, you can also customize the amount and other information pulled from the BillQuick database. If you don't have this knowledge, the time to customize the information, or you simply prefer to have someone else do it, you can call the BillQuick Report Team

The third and best option in BillQuick is to use the Collection Center. You can track all your outstanding invoices along with journal notes regarding the collection efforts, collection statistics and client information - all in one screen. Collecting payments couldn't get any easier for you.

If collecting receivables in your firm is still a tough issue, check out collection agencies. Most businesses wait too long to turn accounts over to a collection agency, usually 6 months or more, because they want to avoid the high cost of a traditional collection agency services or they are afraid of alienating potentially ‘good’ customers.

Bottom Line: Working a late account sooner when it is more collectible reduces the risk of lost revenue and profit associated with a delinquent invoice. You receive more of the monies owed to you. Your line of credit trims down. You have capital for growth and improvement of your company.

Bob Wolff
The Author

Bob Wolff

Bob Wolff is Director of Business Partnerships at BQE Software. He began his career in public accounting and went on to start a consulting firm, Fresh Eyes, providing technology, marketing, sales, support, strategic and tactical planning, and executive coaching to various professional services firms until he joined BQE Software in 2004. His greatest joys are his wife, Dayleen, his dogs, Roxie and Wilson, writing science fiction, and helping BQE grow.

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