The sooner your company gets paid, the sooner you’re able to pay your own bills or invest in new business opportunities.
That being the case, today’s leading organizations are continuously trying to optimize their accounts receivable collections processes to accelerate payments and solidify cash flow.
Let’s take a look at five accounts receivable collections best practices that will help you take your accounting department to the next level.
1. Move to email
Are you still sending your customers bills through the mail?
Assuming you invoice your customers the first moment you can—and let’s face it, you almost certainly don’t—billing your customers via snail mail will slow down payments at least a few days. And that’s in the best-case scenario.
The first step to optimizing your collections process is to bill via email. Not only can you then invoice customers the moment after products are delivered or services are rendered, but you won’t have to wait a few days for the bills to make their way to the customers.
Invoicing your customers by email should speed up payments a bit. For even better results, consider moving to an automated AR solution that will take care of all of these communications for you. The right solution will automatically notify customers when payments are coming due and follow up with them when payments are late—all without manual intervention.
2. Make payments as easy as possible
Imagine you have a customer who thinks it’s a major hassle to pay a bill by check. They prefer paying via credit card.
Don’t force your customers to pay in any specific way. The more options you give them, the more likely they will pay you on time.
For example, rather than only giving your customers the option to send a check through the mail, consider implementing an online payment portal that’s available 24/7. Don’t limit your customers to only paying with Visa, either. Accept as many payment options as you reasonably can.
The easier it is to pay, the faster you’ll get paid.
3. Establish a credit policy
The last thing you want to do is extend credit to countless customers only to spend the next several weeks—or even months—trying to track down the money you’re owed.
Today’s strongest companies have detailed credit policies that outline which kind of customers they’re willing to give net terms to—and which kind have to pay their accounts in full right away.
By establishing a credit policy and making sure your employees and customers are aware of it, you can decrease the chances you give credit to customers who are unlikely to repay. As long as the policy is clear, employees won’t feel bad having to deny credit to certain customers—and customers who get denied can’t feel as though they’re being mistreated.
4. Create a system for following up on late payments
In an ideal world, none of your customers would ever submit late payments. Unfortunately, that will never become a reality for your business.
From time to time, some of your customers will pay late—even if they’ve established a track record of paying on time for years. To increase the chances you get paid as quickly as possible in these scenarios, it is critical that you have a procedure in place for how your company will follow up on late payments.
What might such a system look like?
Send your customers reminders when payments are coming due—perhaps 10 days or so before the due date. If they don’t pay on time, send reminder emails something like three or five business days after the due date has passed. If they don’t respond, try your luck on the phone.
Depending on how bad it gets, you may want to rope a collections agency into the process—but only as a last resort.
5. Offer early payment discounts
No business wants to pay any more than they absolutely need to for products or services.
Incentivize your customers to pay ahead of time by offering early payment discounts. For example, you might add the terms “3/10 n/30” to your invoices to give customers who pay within 10 days a 3% discount. Otherwise, the full amount of the invoice is due within 30 days.
You might not convince all of your customers to take advantage of the early payment discount. But you almost certainly will convince some of them.
Your business can reduce the likelihood it encounters cash flow problems by streamlining your accounts receivable collections process and implementing an automated AR system to help your team manage it effectively.
To learn more about how accounting automation can transform your accounting department, schedule a demo with YayPay today. We look forward to hearing from you!