Like a car that needs fuel to run, a business requires a steady inflow of money to operate effectively. So where does the money come from? Aside from capital infused by investors, funds needed to support day-to-day operations and expansion plans should come from accounts receivables.
[related|post]Accounts receivables form part of the business’s assets and comprise those accounts or transactions that are due for payment. If accounts receivables were not paid in a timely fashion, any company would eventually experience a negative cash flow, sink deep in debt, and even close shop.
It is crucial then for businesses to manage their receivables properly. But making the customers diligently pay when their bills fall due, without making them angry or losing them, could be tricky.
Apollo Arellano, president and CEO of advertising company AQA, says that delinquent payments could be minimized right from the start by determining a customer’s capacity to meet financial obligations, understanding the kind of product or service that you offer, and knowing the industry practice.
“In most cases, the services we provide customers cost millions of pesos. Fortunately, we have had nominal problems in collecting payments because we always research on a prospective customers’ capacity and payment track,” says Arellano.
Offer varied payment schemes
To make it easier for both the client and AQA, the company offers different payment schemes to customers depending on the type of advertising service they require. For instance, if a customer wants to air commercials on a television network through AQA, full payment is usually required before the actual broadcast. This practice, called “pay before broadcast,” is the industry norm when dealing with new clients—ad placements on major media networks are very expensive, and therefore high-risk.
AQA also practices “progress billing” when dealing with customers who availed of other services such as conceptualization and production of TV commercials. A down payment of up to 50 percent of the contract price is typically required after signing the service agreement. Twenty percent is then paid after the filming and photo shoots. The remaining 30 percent must be settled before the release of the final and approved output.