Accounts Receivable

Feb. 1, 2010
A conversation with Steve Villanueva on accounts receivable.

Having a clear financial picture of your business is the cornerstone of your success. And ensuring that you’re getting paid for your services is the first place to start. So how do you get control of your accounts receivable, and why, exactly, is it so important for your collision center?

FenderBender talked to Steve Villanueva, senior consultant at Cal Collision Consultants and 25-year veteran of the industry. Steve gave us some useful, pragmatic advice on how to clean up your shop’s A/R, starting today.

One big issue is not having the proper documentation you need to track the money for each job. You need final paperwork with the dollar amount from the adjustor. That’s No. 1. If you don’t do that, you open the door right then and there to possible A/R problems. The fix to all A/R is really just setting standards as an owner, having your employees implement those standards and getting your final paperwork.

A letter of guarantee should be drafted by a lawyer to hold insurance companies accountable. It costs $100 to $200 to draft it, and you can use it forever. The letter of guarantee has to be signed by the insurance company [for each job that comes in the door.] It has to reference the dollar amount and claim number. Whether that check is lost or gets sent to the wrong place, the insurer still owes you that money. It’s ironclad. Your shop, absolutely, unequivocally, must be paid in full. There’s no leeway there.

There are three steps to a better A/R. No. 1: The final paperwork matches the insurance final paperwork. No. 2: Do you have the supplement check? If not, do you have the letter of guarantee signed to make sure the payment is coming to the shop? No. 3: Have you gone over the deductible with the customer, and do you have a payment procedure that you’re going to accept?

Send that letter of guarantee out. If you don’t get the money within 10 days, call. If you have proper documentation, you just start going up the ladder and throwing people under the bus. Start with the last person you spoke to on that file. Give them a chance. A lot of times they say, “I’m so sorry.” If they don’t get back to you in a day, call their manager. If they don’t call back, call that person’s manager. You keep calling until you get someone in the hot seat, and then the checks come flying. Once the manager is involved, nine times out of 10, that check is mailed within a couple of days. It’s a matter of being aggressive enough or having one designated person to stay on top of your A/R. I’ve learned if you let it go, and they let it go, they’ll just push it aside and not pay. If you let it go, it can be a monster and ruin your business.

I just came from a 20,000-square-foot facility where there was a huge, huge A/R problem. The owner said he trusted that the manager and estimator were doing the right thing. I asked him if he ever did any follow-up. No, he said, and their bank account is negative: “I can’t pay my bills. I can’t pay my employees. I can’t pay my rent.” This wasn’t a little chop shop. It was a really nice facility. It’s scary when you see that. He was doing $100,000 a month in sales, and he had no money in the bank. He had about $60,000 in A/R, so he should have had money. [And yet,] he was completely broke. It took me a month to clean it up.

Everything comes down to cash. Your A/R is everything. [Paying] your employees, your parts bills, your rent—everything is A/R. It’s so simple if you just control it. Put your hands around its neck up front and hold it tight. You gotta really strong-arm it. If you let it get out of hand, you’ll have $60,000 to $80,000 in bad A/R—and no one can afford that these days. If you just follow up on it, you won’t have issues.

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