The 3 C Approach to Collections

This past week I had the privilege of delivering a presentation on maximizing cash flow to the Indiana Small Business Development Center. Throughout the process of preparing, it has been a pleasure working with Linnette White, who is responsible for their Small Business programming. We had a great conversation about how to increase revenues and collect cash faster without reinventing the wheel, hiring more people, or working more hours. I’m excited to be back in a few weeks to talk about the lifecycle of finance and accounting and when to bring on a bookkeeper, controller, CFO, etc.

One of the main takeaways that the attendees said they had was on the way that we approach cash collections at our partner companies at Guidepost. Despite staying out of the actual cash collection process, we are involved in the creation of a process that allows for our partner companies to worry less about collecting their sales and more on making sales. There are three key factors that make up a good collections process.

The three keys to improving collections

(1) Have a process

The most common reason that receivables go uncollected is that no one is assigned to managing the collection process and with no responsibility comes no action. A bad process beats no process every day of the week. Take a little time, sit down with your team, and figure out who is going to make sure your business gets paid. I guarantee you that your customers aren’t going to remind you that they you money.

(2) Stick to that process

Let me be clear: you can, and should, update your process if things don’t work. However, you can’t allow for individuals to veer away from the process on their own volition. If the process dictates calling the AP department when a bill is 5 days overdue, you should be calling on day 5. It is near impossible to know why a process doesn’t work if the process isn’t being followed.

(3) Create a three C process

Although I haven’t trademarked the name yet, I’m growing quite fond of this approach and think it deserves a registration. The three C process focuses on making sure that you are spending time efficiently and effectively.

When creating a process, start with your first C: cheap. Assign the process to a resource that isn’t replacing high impact work with making calls. Alternatively, pay to outsource or use a software. Irrespective of how, don’t send your $250k CMO after a $1,000 bill before trying a cheaper route.

Then, if the cheapest option doesn’t work, find the second C: connected. Typically, someone made the sale to the client and will have an established relationship. Go find that person and make use of their established relationship. It’s much easier to call a saved contact than a random number.

Lastly, if the connected employee can’t make any headway, bring in the third C: chief. At the end of the day, a client needs to pay or they need to stop receiving services / goods. The only person qualified to know whether or not they can be cut off and has the authority to make those threats are your chief officers. Bring them in when nothing else has worked.

If you create a process, stick to the process, and ensure that you follow a process that goes through the three C’s, I guarantee you’ll see a decrease in DSO and an uptick in cash flow. If I’m wrong, let me know and next round is on me.