Energy & Petroleum Articles
Spring Clean Up for Receivables
By Joe Ciccarello, CPA
Gray, Gray & Gray, LLP
As the heart of the heating season begins to wind down, it might be tempting to sit back and congratulate yourself for making it through another winter. But it‘s not over yet. Most retail oilheat dealers enter the Spring with significant receivables waiting to be collected. And without the cash from these outstanding accounts, it will be impossible for your company to move forward.
Here are five steps to take to make sure you are able to collect the money that is owed to you.
- Keep customers current all year long. I know it may be too late for some customers at this point in the season, but you can avoid some big headaches if you make an effort to prevent customer accounts from becoming overdue in the first place. You can give customers an incentive to pay by offering an attractive discount for C.O.D. Don‘t be stingy – any money you lose on the discount is more than compensated by having cash in hand. Or you might offer a smaller discount for payment within a certain time period, such as 15 days.
Be sure you review any proposed discount with your accountant. You don‘t want to give up so much that it impacts your margin. The discount should have a direct correlation with the cost of carrying the receivable.
Be sure your invoices include a penalty for late payment – 1.5% to 2% per month is not unreasonable. - Review account aging every week. Know how much you are owed and who owes it to you. By keeping close tabs on your accounts list you may be able to spot problems before they become unmanageable. If a customer is late, don?t let it slide. Get on the phone and ask for your money before it becomes a problem. Be proactive and take action to collect. The good ones will understand, the bad ones will be caught before they are too deep into your pocket.
Write off receivables that are uncollectable. Do not compound the problem by continuing to keep bad accounts on the books. Have a policy with regard to collection and follow it. Once you’ve determined that a debt is uncollectable, write it off. Don‘t kid yourself or the bank. By moving the receivable to the income statement (bad debt expense) it will force you to face the impact to the bottom line of non-creditworthy customers. - Accept credit cards. We have been after oilheat dealers for many, many years to accept credit card payment. Still, some companies are resisting adding this customer-friendly option. Will credit cards cost you a percentage of each transaction? Yes. Does having the cash up front more than make up for any fees you lose? Yes!
You should negotiate the fee you pay and "cap" it at a certain amount and not as a percentage of revenue. This will help avoid a hidden cost increase in times of sharp oil increases, as two years ago. - Ask for the money. The longer you let overdue accounts sit there, the harder it will be to collect the money you are owed. This is especially true once the weather warms up and the customer can no longer be threatened with non-delivery of product. Although every dealer wants to be seen as a good neighbor, being patient and generous can only be taken so far. Be aggressive in collecting receivables – it is your money.
- Check your own line of credit. Spring is when you need to lock in favorable contracts with your suppliers for the next heating season. If you are riding on a significant amount of overdue receivables you may not have the cash or equity to make your best deal. Make sure you are not shut out of desirable contracts by having a sufficient line of credit set up with your vendors or bank. Do this ahead of time so that you are prepared.
As you begin Spring cleaning around your office make sure the first task you tackle is cleaning up your books. Bring in the cash that is due to you as soon as possible so that you can confidently make plans for the future.
Joe Ciccarello is the Managing Partner at Gray, Gray & Gray Certified Public Accountants, Westwood, MA (www.gggcpas.com). Gray, Gray & Gray has served the accounting, tax, valuation and business advisory needs of businesses in the oilheat industry for over 60 years. Joe can be reached at (781) 407-0300, or via email at jciccarello@gggcpas.com