![Effective Receivables Collection](https://financelibrary.brentwoodbank.com/sites/financelibrary.brentwoodbank.com/files/styles/adaptive_node_image/adaptive-image/public/field/image/shutterstock_79391356.jpg?itok=sxQZXac3)
Improving your collection of receivables is essential if you want your business to thrive. Effective receivables collection not only provides you with the necessary cash flow for everyday business operations, but also furnishes you with crucial working capital to grow your company.
Here is a look at the problems you might encounter getting your money and what you can do to streamline payment.
Impediments to Payment
There are many reasons a customer does not pay an invoice right away or in the period you designate, whether that is Net 10, two weeks or 30 days. The most likely reason is that they are trying to hang on to their money to pay their bills. In that case, a gentle reminder will often get the payment in the mail or paid online.
On the other hand, it could be that the customer is a bad credit risk that is a habitual late payer. If you suspect this is the case, devise stricter guidelines for extending credit. If you have a very small business, not extending credit and expecting payment upon receipt is often the only sensible choice.
Your customers have a budget and must manage money just like you. To take care of their cash concerns, they may put off paying you in a timely manner. Though this is often a part of operating a business, it can have a negative impact on your ability to pay your suppliers and your employees.
Collections Best Practices
To improve your accounts receivable collection strategy, take note of the 12 best practices tactics you can implement for your business.
- Make it easy for customers to pay. Be sure what the customer orders is the same as what you ship.. This reduces the number of returns and slowdowns paying the invoice because of problems with the order.
- Bill what you quote. If you need to make changes, get in touch with your customer immediately. You will have quicker payments if there are no surprises.
- Include documentation with your invoices. This lets customers do their research quickly and pay right away.
- Bill in increments on large projects. This keeps the money coming in throughout the period you work on it.
- Resolve disputes quickly. Find out what happened, make a decision and move on. Lingering problems make for poor customer relations and no payment.
- Design a standard policy for extending credit and collecting invoices. Don’t reinvent the process for each new customer. Having standards means not making exceptions. This lowers your risk from those with poor payment history. Extend credit to profitable companies that are good payers.
- Be proactive. If customers regularly pay late, set up a routine to contact them on a regular basis to remind them to remit what they owe.
- Educate your credit and collections employees. Make sure they present the best face of your business and that they thoroughly understand your requirements.
- Get to know the person who pays the bills. It is always easier to fix a problem if you already have a relationship with the person in authority at each company you do business with.
- Offer discounts for early payment. This can be one of the most effective ways to ensure timely payment.
- Have a collection process in place that standardizes:
- Invoices
- Statements
- A way to track where the invoice is in the aging process
- A system for making reminder calls
- Already written collection letter templates
- A reliable system of recording payments
- A method for recording customer payments and deposits
- Contact each customer when you send the invoice. Either by phone, email or text message, make sure they have received it and give them a chance to ask questions.
Collecting receivables is a tricky topic when dealing with customers. However, every business needs to have a set of guidelines in place that sets standards for extending credit, getting payment, and collecting late invoices. Assure your business of a steady flow of cash that will allow you to produce more inventory, sell more, and keep the budget cycle moving forward.