Not all revenue you earn is immediately cash. Accounts receivable is revenue; however, unless you collect from a customer, it won’t be cash you can use for investments or operations. One of the problems you might encounter is collection of receivables. Some customers might not follow your business policies or delay payment for whatever reason. Delays in collection or non-payment result in cash flow problems. The latter prevents you from leveraging growth opportunities and paying your own bills on time. Identifying collection problems allows you to implement the appropriate solution.

These are some of the challenges your business might encounter during the collection of receivables.

Secure Online Payments

More and more businesses are allowing their customers to pay online. This digital payment method simplifies the process for them. They don’t have to write a check and mail it or drop it off in person. A check may also take days to arrive or clear. This delay has a negative effect on your cash flow. In some cases, even if you offer online and electronic payment, some customers will still be reluctant to use it. Assure them that their online payments are secure. Integrate security encryptions and the latest software on your website and payment platforms to prevent data theft, hacking, and other similar problems.

Timely Collection of Payments

Some customers can’t pay for valid reasons while others are just delinquent. Customers might have financial problems of their own which is the primary reason they can’t pay on time. Late payments have a negative impact on your operations. You might have cash shortages that affect purchase orders and payments to partners or suppliers. Some customers might use delaying tactics to manage their own cash flow. In some cases, customers don’t receive the invoice you sent at all. Implement policies and establish schedules that customers must follow. Penalize late payments and send invoices and notices through various platforms such as emails, send a hard copy to a customer’s mailing address, and call for follow ups.

Errors in Data Entry

One of the challenges during the collection of receivables is mistakes in data entry. A name might have been misspelled, a missing word on the mailing address or email address, wrong or no longer in use phone number, and other similar mistakes will delay collection. Erroneous data on the invoice can also cause delays in payment. Incorrect due dates or amounts will cause collection problems. An encoder might also miss discounts and mention policies that you want followed.

Inconsistent and Unreliable Processes

Inconsistent notices might confuse customers, which might delay the release of payments. Establish a timeline whenever you send invoices. It could be two weeks before the due date. You should also implement a consistent schedule when you send notices whenever a due date is closer. This could be a day before payment is due or a different schedule. Avoid changing the schedules you establish, consistently implement them. Create a set of guidelines that your collections team can follow. They can use this to respond to customer questions or complaints. You’ll also need a system to track collections and their due dates. Use accounting software to monitor payment dates and schedule notices.

Customer Disputes

Customer disputes may cause payment delays. They might dispute the amount you charged them or the notices you send. You’ll have to respond and solve their disputes before you move forward with collection. One of the main reasons disputes occur is miscommunication. The email you sent them went into their spam folder, they were unable to answer your calls, incorrect contact information, or there might be confusion regarding payment terms. Communicate your terms clearly with your customers. Align problems, solutions, and policies with everyone in the collections team. Keep everyone involved in collections in the loop to eliminate miscommunication within your team.

Frequent Payment Misapplication

Payment misapplication is a headache for both customers and businesses. Companies must reconcile accounts to rectify the mistake of posting a payment to a different invoice. This consumes valuable time and resources you could use for investing in your business. It also affects the credit you give your top customers. Misapplication of their payment may max out their credit limit and make it difficult for them to make more purchases from your business. This also delays the fulfillment of their dues. Your collections team may also have to communicate with them constantly to clarify payment terms and schedules. Slow collection of receivables constricts your cash flow.

Manual Recording of Data

Manual input of data and reconciliation of financial statements may lead to mistakes. Even just one error in your accounting books and/or financial statements may cause problems such as inaccurate cash flow, income, and expenses, incur penalties, and poor business decisions. You might calculate the wrong amount when you send a customer their invoice. You might think you already collected a receivable, but you haven’t. A person feels fatigue, overwork, and other things which may affect the quality of their work. Consider automating some aspects of your collections process. Doing so eliminates data entry mistakes. You’ll still need a person to manage the tools you use. The software you invest in simplifies tasks and eliminates redundancies as well.

Relationships with Customers that Pay Late

It’s not good for your business to completely remove late paying customers. Poor relationships with them result in non-payment or frequent late payments. It’s important that you communicate with them so that you can identify the reasons for delays in payment. Make it easier for your collections team to manage customer relationships by providing them with online and cloud-based tools. Provide customers with self-service options whenever they need to pay. You must also provide them with a direct communication line with your collections team. Make these online to eliminate or at least reduce the need to go to your office.

These challenges aren’t insurmountable. You need to communicate with your customers and establish clear policies with your collections team to avoid any problems. If you need assistance with updating your accounting books, we at Robookkeeper can help you. We offer first-rate virtual bookkeeping services. Our team of virtual accountants has the experience and expertise to assist you.