Importance of Collecting Your Money from Clients
Getting clients to pay up…
On April 27, 2011, H.B. No. 1146 also known as “AMC Bill” was passed in the state of Texas. Through successful efforts of the Foundation of Appraisers Coalition of Texas (FACT), its members, and many more this bill requires the registration and regulation of appraisal management companies doing business in Texas. The following is a link to H.B. No. 1146.
Some highlights of the bill include appraisal review, competency of appraisers, and statement of fees. Though all are important, one particular highlight of interest is outlined under Sec. 1104.157 titled “Compensation of Appraisers.”
Compensation of Appraisers
This section of H.B. No. 1146 reads that appraisal management companies shall:
Except in cases of breach of contract or substandard performance of services, pay an appraiser for the completion of an appraisal or valuation assignment not later than the 60th day after the date the appraiser provides the completed appraisal or valuation to the company or its assignee;
Financially speaking, this is a significant win for appraisers in Texas. Of course it is best if your clients paid you within your terms, but this gives you reason to expect payment within a certain time frame.
It’s Been 60 Days… Now What?
An appraiser is protected in this bill if payment is not made after the allotted time. If an appraiser has not been compensated after 60 days, there are steps you can do to recover funds owed to you. Section 1104.162 under “Dispute Resolution” states:
An appraisal management company shall make a dispute resolution process available to review a written request by an appraiser who… is not paid as required by Section 1104.157…
And if you still have not received payment from an AMC after the dispute resolution process you may…
… file a complaint with the board against the appraisal management company if the matter remains unresolved… and… the board may reprimand an appraisal management company or conditionally or unconditionally suspend or revoke any registration…
Furthermore, if an AMC continues to avoid payment it may be given an administrative penalty of up to $10,000 for each violation.
Importance of Collections
Going forward, there will (or should) be more sense of urgency for AMCs to pay appraisers for reports completed in the state of Texas. But, what about you as an appraiser with AMC clients outside of Texas?
Regardless of where you live and work as an appraiser, it is important for you (and any business) to collect what’s owed to you… quickly! Consider the following information and study on small business collection success rates in the U.S…
Within 60 days of invoices – 90% collection success rate
Over 90 days of invoice – 50% collection success rate
Over 180 days – 20% collection success rate
Over one year – very minimal (if any) collection success rate
We can see that it truly IS important to collect money owed to you as soon as possible. Otherwise your collection success rates drop dramatically if you fail to collect within 60 days. I encourage you to think about who your clients are and review how effective your collect process is.
Improving Collections of Accounts Receivable
Here are four ways you can improve your collections:
- Clear understanding of terms of payment – Every invoice that you submit to your client should clearly indicate how and when your clients need to pay. It does not have to be in big bold letters in the middle of the invoice but should be very visible. Consider having this clause next to the amount owed. If you do not provide invoices, a contract or agreement with your client should tell them clearly of your terms of payment.If there are penalties for late payments present that on the invoice or contract also. We all do not want to pay for more than we agreed to right? Your clients may be more inclined to send payments on time if they understand the consequences of paying late.
- Organize yourself! – You have to be organized. Having effective organization of your accounts receivable gives you the ability to better track your unpaid invoices and therefore preventing any potential non-payments.
- Call your customer – It is a good idea to contact your client about 7-10 days after you send them an invoice. The purpose of this call is NOT to pressure your clients for payment rather it’s to make contact with the person that pays the bills (whether it’s the owner or someone from accounts payable). Calling to confirm if they received the invoice or asking them if they have any questions regarding how to send payment can help you build a relationship with your clients – especially the person that sends payments.
- Write it down! – Document everything. Record the name(s) of the people you talked to, time and date of when you called, and make note of the nature of the conversation. Doing this can help you review your notes and better plan your collection approach prior to the next call if necessary.
Factoring as an Option
Factoring is a great option for your appraisal business if you have clients that cannot meet your terms. As your business grows or if you’re having a slow month, factoring can help your appraisal business receive funds owed to you in a shorter amount of time – typically within a business day or two. It’s cost effective and once the invoice you submitted is approved the risk of collecting is transferred to the factor. This allows you to do what you do best!