The secret to a thriving business is to make sure that you protect your accounts receivable to boost cash flow allowing for more sales and growth.
Even with steady sales, businesses that do not protect their accounts receivable could find themselves in trouble if they do not have enough liquidity in their ecosystem.
According to a report by Quickbooks, almost one-third of businesses cannot pay vendors, pay the bills, repay loans, order stock or pay their employees because of strangled cash flow. This is surprising and troubling.
Many things go into creating a successful business, but cash flow keeps it running. Positive cash flow is generated by accounts receivable.
Chasing debts in court is costly and time-consuming
The biggest problem with chasing bad debt is that, whether you decide to go through the state courts or a debt collection agency, the time, money and effort put into the exercise is usually not worth the while. The time and cost are typically not worth it.
The courts’ backlog exploded during the Covid Pandemic and the waiting list is enough to make your eyes water. Seeking justice is now a sport for kings.
Even if you do eventually get to trial, the cost of legal and attorney fees often means that even if you prevail, the return is pennies to the dollar (if you’re lucky!).
There is, however, a cost-effective alternative. Including an arbitration clause in all contracts you sign is one way to protect accounts receivables. Including an online dispute arbitration clause is even better.
Online Dispute Resolution (commonly known as ODR) is being pushed as an alternative recourse to justice by the state courts. It is legally binding and much swifter and easier than brick-and-mortar face-to-face arbitration.
In fact, the Department of Transportation has now made it mandatory for moving firms to include an arbitration clause in their contracts when transporting household goods over state borders.
Create an Accounts Receivable Ageing Report
The first thing you should do to take back control of your collections is to establish the current payment status of all your accounts receivable.
Break down the AR into the number of days since the invoice was issued.
- 0-30 days
- 31-60 days
- 61-90 days
- more than 90 days
List the amounts due. By monitoring the report regularly, you can identify problems before your invoice goes past due and protect your accounts receivable.
Set out your payment terms clearly
When you enter an agreement with another party, you should ensure that everyone knows the payment terms.
Often when a deal is close to being sealed, people stop listening and become friendly.
Make sure that you tell your client when they are expected to pay, how much, and by which means.
You should also ensure that your invoices are clear and correct so they do not end up in the dubious tray of your client’s accounting department.
Another popular method of making sure accounts receivable are paid on time is to offer a small discount if the client pays within 15 days instead of 30.
Move fast when invoices are past their due date
It is common knowledge that the longer accounts receivable remain uncollected, the less chance there is that you will ever see the money.
Going back to the Accounts Receivable Ageing Report, get on the front foot and contact your clients on the first day that a payment is late.
Do not be afraid to have an open conversation with your clients. They may have simply forgotten, and fostering the relationship may prevent the situation from happening again.
You should also keep yourself open to the idea of setting up a payment plan.
What if you could protect accounts receivable from the outset?
You can, and the easiest way to do this is by including an arbitration clause in any contracts you may sign.
Online arbitration is a form of online dispute resolution.
The process is simple. If a clause is included in a contract, a plaintiff can file against a defendant online using a dedicated platform.
Brief is the online arbitration market leader. Its platform is 100 percent online and is cheaper and quicker than traditional brick and mortar institutions.
It has revolutionized ODR by making it accessible to small businesses and operators.
Brief turns around a typical arbitration claim in 45 days, compared to 410 days in traditional arbitration.
A typical claim will be 80 percent cheaper than traditional arbitration and will typically cost you no more than $1,700.
With an arbitration agreement in place, you can get the money you are owed and put it back into your business, where it belongs.
Brief makes it easy with its process involving six easy steps. First, you simply upload your claim and any supporting documents and evidence, and the defendant submits their counter-evidence.
If they do not do so within the stipulated time frame, they will find themselves in default, and an award will be made against them.
If they do contest the claim, an impartial EJudge is assigned to decide the claim, and they rule in your favor, and you prevail, a final and binding arbitration award is rendered.
This can be filed in a state courthouse to be reduced to an enforceable judgment. (Binding awards are issued if the agreement calls for a binding award.)
The entire process is managed on its proprietary online platform, from filing a claim to discovery and a final decision.
The question is: Do you have a valid arbitration clause in your financial contracts if any at all?
Where can I find a template for a standard Arbitration Clause to protect Accounts Receivable?
Brief makes it easy with its clause builder platform. Of course, each contract and deal is different. But essentially, dispute resolution clauses should have the following (or similar) text included: “The parties to this contract hereby agree to resolve legal disputes exclusively through binding arbitration”.
The above text means parties agree that arbitration will be a legally binding process that can be used if a dispute arises.
Brief offers a free-to-use arbitration clause example that you can customize to suit your needs.
The arbitration clause sample comes in both long-form and short-form.
Including an arbitration clause or provision in your contracts ensures that you are serious about collecting unpaid debt and leaves no room for confusion.
Are you ready to recover what you are owed?
Brief has helped small and large businesses across the United States recover debts that were simply not worth the cost of traditional litigation or arbitration if not for online dispute resolution.
Register now on our online portal. Submitting your claim is a simple process if a dispute arises, all for a flat upfront fee.
Satisfied and repeat participants include electronic commerce sites (Fintech), factors, banks, MCAs, and other lenders.
Brief also handles all types of monetary disputes and declaratory relief actions such as quiet title, coverage claims and warranty claims.
Our screened network of Ejudges spreads across all 50 states, and each case is matched to the jurisdiction and subject matter expertise of the Ejudge.
Brief is a market-leading online arbitration platform in the United States. Our 100 percent online alternative dispute resolution platform helps businesses protect their contracts and agreements through online arbitration. Follow us on LinkedIn or Facebook for updates and news about online arbitration and more.
*Brief cannot and will not give legal advice on any matters, financial or not.