Accounts receivables are considered part of your business’ revenue. However, it’s not yet cash because a customer has yet to pay it. If the delay in payment is too long, your business might encounter cash flow problems even if it’s generating revenue. Collecting accounts receivable should be one of the priorities of your business. Timely collection injects money into your operations and allows you to maintain cash flow at a level you want.
The following best practices allow you to collect accounts receivable faster.
Invest in Collection Software
One of the reasons for delays or slow collection of receivables is that some companies are doing it manually. This process is prone to mistakes and delays. The person/s handling accounts receivable may forget to send an invoice, misplace it, or fail to schedule its release in a timely manner. Invest in collection software to avoid all these problems. With a system in place, schedule release of invoices, send automatic notifications days, on the day or after a due date. Software simplifies the things you need to do to collect accounts receivable.
Update Billing and Procedure Policies
Delays or failure to collect accounts receivable is one of the factors that affect your budget. Review and update your procedures and billing policies to collect faster. Establish a consistent schedule in mailing invoices by mail or email. Include all the information a customer needs to know such as possible interest because of previous late payments and payment terms. You might also want to consider changing your billing cycle. You can send notifications twice a month or once a week to make sure a customer knows the due date of their invoice and the possible penalties they might incur because of late payment.
Discuss Payment Terms at Point of Sale
It’s important that you settle all doubts about payment terms at the point of sale. This reduces confusion about mode of payment, schedule of billing, overdue penalties, and other necessary information. Determine the contact persons on all sides so that there’s a clear delineation of work. Once all sides agree on the terms, it’s easier and faster to collect accounts receivable.
Simplify Payment Options
Delays in collection might occur because of a complicated payment process. Customers find it difficult to checkout, you don’t offer their preferred payment method, and the invoice might be missing important information. Simplify payment options and be meticulous when it comes to including information in invoices. Offer multiple payment methods so that customers can pick one that is convenient for them. Send an invoice that contains contact details and all relevant information. Make it easy for your customers to record the invoices you sent them.
Create and Implement a Specific Collection Strategy
When your company decides to collect accounts receivable, the whole process becomes simpler when you have a specific approach. Don’t let your team implement their own ways. Create policies and guidelines that everyone on the collections team should follow. Some of the guidelines your team can follow include:
- Establishing a number of days to call a customer if they received the product they ordered.
- Determining a number of days to call, email, fax or communicate with a customer regarding their due date.
- State possible penalties and actions your company will take for late payment or non-payment.
- Record promises customers make regarding date of payment, method of payment, or new terms they would like.
These improve collection time and establish rules that customers should follow whenever they have transactions with your business.
Take a Proactive Approach
Some customers may delay payments because you won’t demand it from them as often as you should. Take a proactive approach when it comes to collections. Send emails, direct messages, text messages, and/or call customers to notify them about their due date or if they’re already overdue. Set the tone from the first time they become customers. This establishes your expectations from them that they should consistently pay their dues on time. Create a consistent follow up schedule that your collections team implements.
Make an Aging Report
An aging report provides you with an overview of your business’ accounts receivable. It allows you to monitor the payment status of each customer. Include the amount each customer owes. Create different groups based on the number of days that have passed since you sent the invoice. This approach enables you to take appropriate action depending on how close the due date is or how many days have passed since the due date.
Communicate with Customers Regularly
You need to establish regular communication with customers to collect accounts receivable faster. Get their contact information such as email address, phone number (home and/or office), and mailing address. Ask them which mode of contact they prefer and send invoices and notifications through their preferred method. Discuss possible penalties they might incur for late payments or non-payment. This clarifies possible questions they might ask if ever they fail to pay on time. Set a consistent schedule whenever you contact a customer about their dues based on the number of days before an invoice is due or after its due date.
Show Some Flexibility
Offer flexible payment terms to customers who always pay on time. Incentives such as discounts, longer payment terms, more payment options, and better rates encourage customers to pay on time or early. Before you make any of these offers, assess a customer’s standing with your business. Are they a major customer? Do they always pay their dues on time? These are just two of the questions you can ask yourself before offering payment incentives to customers.
When you need to collect accounts receivable faster, these are the best practices you can implement. Collection is an important part of your operations because it makes sure your customers pay on time. Delays in payment have a negative impact on your cash flow. Poor cash flow constricts your business’ financial flexibility and limits or eliminates growth opportunities.
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