There are so many aspects to running and managing a business that you can truly enjoy. Maybe you love interacting with customers, problem solving, or working the back end, creating new products and services. You and your team should enjoy coming to work and doing what people pay you for.
But there are going to be times when customers do not pay you as we are sure you have figured out by now. And that can throw your accounts receivables into negative territory. How you manage your accounts receivables is critically important to meeting your cash flow needs as well as adhering to your own financial obligations as a business. Maybe you don’t fully enjoy the accounts receivable process, but it’s part of running a business.
Here are a few tips from our experts on how to improve the accounts receivable process in your organization before the need for a debt collection agency.
Review your entire accounts receivable process
It makes sense for any size business to periodically review the entire accounts receivable process. Sit down with your appropriate team members and get a snapshot of your invoicing procedures as well as how quickly you see payments coming in the door. Those that should help you through this process include your bookkeeper, your CPA and if you are a larger organization, anyone you feel in your accounting department that touches accounts receivables.
In short, button up any loose ends that you see in the accounts receivable process and get as organized as you can as a business.
Always invoice customers on time
This is one of those pieces of advice that you will see repeatedly on our blog here. But unfortunately, it’s one we need to keep bringing up because oftentimes when we meet with new clients, we find that there can be delays when invoicing customers. We know you get busy, and we know seasonal businesses such as lawn care and landscaping companies can just run out of hours in the day. But you must stop and invoice customers on a regular schedule. There can be no missing of regular invoicing.
Review credit procedures
During the process of reviewing your accounts receivable process, look at how you issue credit to your customers. Review your credit application with an attorney if possible, and periodically review the amount of credit you issue. If your business extends any type of credit to customers, these procedures should go through a regular review. If you find certain customers are continually late, consider lowering the credit you issue them. Past payment history will only give you a snapshot of the way customers will pay you in the future.
Consider updating your billing cycle
There is no hard and fast rule about the timeframe in which a customer should pay your business. Most businesses require payment within 30 days but if that’s not good enough for your cash flow, you can adjust that period any way you like. If you want your customers to pay in 15 days, indicate that on your invoice. What is far more effective is to put the actual due date on your invoice rather than a message that says, “payment due on receipt.” Put the date you expect to be paid on the invoice.
Create a healthier customer relationship environment
Let’s face it, some customers are just going to pay late or not pay you at all regardless of the situation. But many consumers who are treated with impressive customer service and an even more outstanding customer experience often pay your business on time. You have built a tremendous relationship with that customer and are even on a first name basis with them. To be blunt, they may feel embarrassed if they don’t pay you after you have cultivated such a great relationship.
If you think about it, your entire team is part of the accounts receivable process. Show your team that by creating an outstanding customer experience, it benefits the companies in so many ways including how customers pay.
Review internal debt collection procedures
How you handle late, and nonpaying customers internally will go a long way when it comes to improving your accounts receivables. For example, if you get on the phone after 60 days of nonpayment and sound angry and upset with your customer, that is not going to prove to be the best way to get your customer to pay. So the first step in internal collection procedures is to keep your cool. The second step is to ensure that you were following up on unpaid invoices with either a paper statement or a cordial phone call. Before you hire a collection agency you should try to collect with internal resources.
However, you should not let it go beyond 60 days before turning that unpaid invoice over to a reputable debt collection agency.
Contact our team today to schedule a free consultation where we can review your internal procedures and come up with a solution to your cash flow needs.