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O P I N I O N
Cash flow and ‘AR drift’ Don’t just put a collection policy in place. Make sure your accounting team, project managers, and principals make a coordinated effort to shore up accounts receivable.
A s firms enter the last quarter of 2016, a strategic look at cash flow is critical to being well positioned going into the end of the year and entering 2017.
One of the killers to cash flow is accounts receivable drift. Otherwise known as AR drift, it’s the practice of allowing your clients to drag out payments over 30 or 60 days, or even more, despite the contract your firm has with the client. So, to ensure that your firm is well positioned, this is a good time to review and amplify the following among project principals, project managers, financial managers, and contract managers: REVIEW OF CONTRACT TERMS. Your firm’s contract with the client is the starting point for all issues related to collections. It is the subsequent adherence to the contract by your principal in charge and project managers that governs how your firm will manage the accounts receivable process. Your client hired your firm for superior qualifications, expertise, and value. The contract, which establishes the ground rules for performance, allows your firm to provide those
services and to invoice the client accordingly. AIA established “pay upon receipt” as standard language. Other contracts specify payment within 30 days after the invoice date. And your contracts have their own unique terms and conditions. “Your firm’s contract with the client is the starting point for all issues related to collections.” Why are you not holding your clients to the terms of the contract? More importantly, does your contract have terms and conditions that govern the invoicing, collection, and suspension of work for non-payment? By not providing a sound business approach and adherence to the contract terms, your firm runs See TED MAZIEJKA, page 12
THE ZWEIG LETTER July 11, 2016, ISSUE 1159
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