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Getting paid on time 3 min read

5 considerations when collecting receivables

Challenges to getting paid can have a domino effect on your cash flow. Manage the gap between payments and collections with the right tools, products, and partners.

When it comes to cash in versus cash out, the only real cash a business owner is managing on a day-to-day basis is the collection of accounts receivable and the payment of accounts payable. 

What’s more, challenges with collecting or paying can create a domino effect on cash flow – both yours and that of your suppliers.

“Ideally, you’re collecting more than you’re paying out, so managing the gap between the two involves trying to improve your net cash position,” says Teagan Winnick, Manager, Cash Management, who serves CWB’s Calgary South District. “That’s where accounts receivable versus upfront payment can be problematic for cash flow management. Your customers may pay late or ask for an extension. At the same time, your suppliers may accelerate requests for payment.”

Winnick combines her experience with that of her colleagues in Commercial Lending to provide these five insights on collecting.


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1. Collecting means you’re lending to your customer – until they actually pay you.

“When you’re doing a job or supplying a product and you’re waiting for that money to come in from your customer, what you’re essentially doing is lending to them,” says Winnick. “So, you really need to do your due diligence. Do you know this company, this person, their reputation? Have you had a conversation up front about how payment is going to work?”

2. Know who you’re doing business with.

Just like any lender, you need to know the level of risk involved. “Similar to what we do in banking, you have to be hyper vigilant about who you’re entering into an agreement with,” says Winnick. 

She suggests doing reference checks as well as a bank confirmation or credit check to see what kind of history the potential customer has. “It’s important for companies who have accounts receivable to build an internal system of credit checks."

Winnick adds you can create your own credit check form and send it to your bank (keeping in mind some fees may apply): “As long your customer has signed and consented on your form, the bank can do the check for you.” 


3. Work out the details of closing the sale.

Managing how the sale will be closed – whether it’s an accounts receivable scenario or a more immediate method of collection – is just as important as managing collections and payments, says Winnick.

“You need to have clear confirmation of how this is going to happen before any work starts or any money starts moving. That’s a crucial step in building relationships with your vendors and clients – everyone needs to be on the same page with expectations and the terms of the agreement. For example, if it’s you who’s collecting, consider having the customer sign a contract and asking them for a deposit.”   

4. Do a cost-benefit analysis of payment and collections options with your financial partner to determine the best fit for your business.

“There are solutions – like merchant card services or electronic funds transfer (EFT) platforms – that can eliminate accounts receivable along with the associated interest costs and challenges,” says Winnick. “That said, they often come with an upfront cost to the service provider. There’s also the option of accepting credit card payments, which has its own advantages and disadvantages. That’s why business owners should have a conversation with their bank about the pros and cons of each method and how this lines up with their needs.”

Collection methods at a glance:

  • Cash: Instant, guaranteed funds, no costs for the collection. 
  • Merchant card services: Instant, guaranteed funds, costs for service provider. 
  • Electronic Funds Transfer (EFT) and Customer Automated Funds Transfer (CAFT): Funds within 24 hours.
  • Cheque: Instant (sort of) – the funds aren’t immediately cleared and available to use; funds aren’t guaranteed (there’s a risk of the cheque being returned unpaid).
  • Accounts Receivable: Time delay on receiving funds, administrative costs, risk of not collecting and/or costs to collect.


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5. Be cautious when sales are too good.

“It’s great to be busy with sales but you need to ensure you can support it operationally,” says Winnick, noting that runaway sales can mean running out of cash if you’re not getting paid right away. “You’ll want to think about all the working capital the company needs in order to deliver your goods or services before it eventually gets paid.”