Wednesday, March 16, 2011

Business lessons from a paper route: Getting paid – a paperboy’s guide to Accounts Receivable and collections.

In an earlier post, I wrote about delivering papers and how I learned that getting the job done lead to happy customers. Getting the job done meant delivering the paper on time and in a readable condition. We did not realize it at the time, but we were actually running our own small businesses. Paperboys were responsible for delivering papers, for collecting from customers, and even for sales and marketing. Picking the paper bundles up at the train station, assembling the paper, and delivering it to doorsteps across town was only part of the job.

My paper route was my first experience with accounts receivable and collections. In my town, paperboys delivered the paper and personally collected from customers. The paper cost seventy five cents each week. A small percentage of customers only took the Sunday paper, and they paid a quarter. Thursday was collection day. I would sling the bag I used to carry papers over my shoulder and start my route in the usual manner. However on collection day I would ring the bell at each house and let the customer know that I was collecting for the week’s paper. I kept track of what each customer paid with a set of cards on a ring. Each card had the customer’s and any special delivery instructions in the middle, and a box for each week around the outside of the card. When the customer paid me, I marked the box.

Cash flow is one of the biggest problems facing small businesses, and one of the keys to managing cash flow is to do a better job of managing accounts receivable. Leita Hart, a CPA based in Austin, Texas who provides excellent training programs to businesses, to government agencies, and to other accountants has written a simple yet effective book on the topic of cash flow, The Four Principles of Happy Cash Flow. One of her principles is getting money in the door faster. If your eyes glaze over when you hear terms such as cash conversion cycle, you need to read her short book.

Some of the things I learned as a paperboy can help you manage your receivables. The first five items will help you improve your collections, the last item will help you improve the quality of your service and increase your sales.
  • Collect regularly
  • Collect on time
  • Expect timely payment
  • Do not let past due accounts linger
  • Tie collection to something that reminds what they are getting for their money
  • Take advantage of the customer contact
There is a reason that bills come every month. Regular billing is easier than ad hoc billing, and it creates an expectation in the mind of the customer. Customers are creatures of habit. Even with electronic banking, consumers typically set aside a certain time each week or month to pay bills. Small business customers behave in much the same way, and larger businesses that have employees or even departments set up to pay bills, also find it easier to manage bill payments by setting up a schedule. My paper route customers knew that I would be along every Thursday to collect, and they had the money waiting by the door for me.

Once you have a collection schedule, stick to it. Do not be late. When I missed my Thursday collection, my customers were confused. By Friday or Saturday, the money they had set by the door had gone to some other use.

Always expect to be paid, and expect to be paid on time. You have made an agreement to provide a good or service, and your customer has agreed to pay you something in return. Keep your side of the agreement, and be clear that you expect your customers to keep to the agreement. One of my first lessons as a paperboy was that if customers did not have change, or left their purse or wallet in the car, it was the beginning of a bad relationship. I learned not to walk away from the door until I was paid. There are several reasons that customers may not want to pay you. They may manage their cash flow by delaying payables. Similarly, they may not have the money to pay you. However, withholding payment could also be an indication of customer dissatisfaction. Whatever the reason, you need to figure it out and address it.

Don’t neglect late payments. Two things happen when customers do not pay on time. The first is that as the time between the purchase and the payment grows longer, customers stop associating the value they received with the payment you are asking them to give you. They become less and less likely to pay you. Another thing that happens, particularly if the bill continues to grow, is that the customer becomes very aware of the amount of money and begins to question the size of the bill. As a paperboy, it was easy to collect a buck and a half if I missed a week. It was much harder to collect $2.25 or $3.00 or more.

When you collect, you should always remind customers why they are paying you. When I was a paperboy, I gave the customer the paper when I asked for payment for the week. You can do the same thing by providing detail in your billing statements.

Take advantage of your contact with customers when you collect. If all you do is ask for money, then you are missing great opportunities to get feedback from your customers that you can use to improve the quality of your product. You are also missing opportunities to find out if your customers have other needs that you can address.

Whatever your business, you can improve your cash flow by improving your collections. Hopefully, these simple things I learned as a paperboy will give you some ideas about how you can improve collections in your business.

Friday, March 11, 2011

Business lessons from a paper route: Getting the job done and keeping the customers happy

I was a paperboy. I had about 35 customers in a suburban town in New Jersey. After school each day, I stopped by the train station where the truck from the Bergen Record dropped off bundles of papers for the five or six boys that delivered in my part of town. I would either load the papers into baskets on my bicycle, or I would carry them in a big canvas bag.

The papers had to be delivered in time before all of the fathers arrived home from their jobs in New York City so they could read the paper before dinner. That usually was not very difficult. School was out by 3:15. If I started my route by 4:00, I could finish by 5:00 on a good day. Saturday and Sunday papers had to be delivered by 8:00. The Sunday paper took longer because it was always delivered in several sections, and it took extra time to assemble the paper before we delivered it.

All of this was a great experience for a not yet teenage boy, especially when the papers were small and the weather was good. The US Postal Service may not have adopted the words inscribed on the New York post office, “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds,” as a motto, but they surely applied to the paper boys in Glen Rock, NJ. The papers were not always very small either. Large papers were difficult because they took extra time to assemble and because paperboys had limited carrying capacity. Large papers frequently meant that a route that could be walked or biked in half an hour could take as long as an hour and a half or more because the carriers had to make several trips.

You should be getting the idea that there were days that it just was not fun to be a paperboy. It always seemed as if it rained or snowed on the days when the paper was the largest. Those were the days that as I walked in the door after finishing the route, hungry because I was later for dinner, my mother would say, “Mrs. C called, and the paper was wet,” or “The Mr. M called and wanted to know why his paper was late.” I did not realize it at the time, but this was an important lesson, and it was good experience for later in life. I might have been cold and wet and hungry because I was late, but that did not matter. The papers were also wet and late. My customers expected me to deliver their papers on time and in readable condition. The weather did not matter. The size of the paper did not matter. Nothing mattered except that the paper was delivered as promised.

I hope it does not sound as if I had unbearable customers. My customers were fabulous, and they liked having me as their paperboy. They were generous with tips when I collected, and when they saw me in town, they always had a kind word for me.

The lesson from the paper route was simple. When I began my route, I agreed to deliver papers. My customers, who paid me for my service, expected me to deliver. It was not always easy, but that was our agreement. If that lesson seems too simple consider how many times service providers don’t deliver. The idea that getting job done means happy customers was a big lesson for a young businessman. It was a lesson from my paper route that I remember today.