In an ideal world, every single one of your customers would pay you on time—if not ahead of schedule.
Unfortunately, it seldom works out that way.
According to a recent study, the average business receives payments 22.5 days after they’re due. This causes nearly four out of five companies to invest more time in tracking down invoices. Making matters worse, 48 percent of businesses are forced to pay their bills late because of cash flow problems caused by their own customers paying late.
As it stands already, AR managers have a lot on their plates. In addition to their regular job responsibilities, they have to spend a lot of time and energy carefully planning out how to capture payments on outstanding invoices.
Depending on how bad the situation gets, it can feel like herding cats.
In some instances, customers can’t pay you because they are low on cash. But in other instances, you’re waiting on checks because customers were simply unaware that payments were due to begin with.
Your company is not in the banking business, and you don’t see added return in the form of interest if your customers don’t pay on time—it’s time for you to get out!
The good news is that with the right approach to accounts receivable management, your company will have a much easier time tracking down the payments you’re owed—all without having to spend a ton of time following up with customers.
With that in mind, let’s take a look at some tips you can employ to track down late payments and increase the chances more and more of your customers pay on time:
- Develop an AR management system. By developing a system that explicitly outlines how your organization manages payments—and sticking to it—you can increase the chances your customers pay on time while reducing the strain on your AR team. For example, your system might include following up with customers who haven’t paid on time three days, one week, 15 days, and 30 days after payments are due. With the right accounting automation platform in place, these messages can be sent out automatically.
- Send reminder letters before payments are due. The best way to increase the chances your customers pay on time is by making sure they’re aware payments are coming due. Think about how your credit card company shoots you a note reminding you to settle your account a week or so before payment is expected. Give your customers enough time to get their accounts in order.
- Call customers ahead of time. The average worker spends 13 hours each week in their inbox. That being the case, it’s certainly possible that your customers will miss your payment reminders due to email overload. To increase the chances customers don’t forget they owe you money, give them a call a week or so before payment is due to let them know. You don’t need to call all of your customers—just the ones who don’t have the best track records with payments.
- Send dunning letters when payments are past due. When a due date comes and goes and your client hasn’t sent in a check, it’s time to send what’s called a dunning letter, which lets customers know payments are late. While you may be tempted to take out some of your displeasure on your slow-paying clients, err on the side of politeness in these communications. Need some tips on how to write an effective dunning letter? Check this out.
- Take legal action (if necessary). Taking legal action against a client is a major move—not one you want to take lightly. It will hurt your client’s credit score and likely damage your business relationship. But in some instances it’s necessary. If you find yourself dealing with a client who owes you a lot of money and is refusing to pay, be as patient as you can. Reach out to a collections agency as a last resort. Sometimes you’ll have no choice, but it bears repeating: Be patient. If you offer your clients net 30 terms, for example, you may want to wait until payment is at least 90 days late to consider sending a client to collections.
If this sounds like a tall order, take a deep breath. An accounting automation platform such as YayPay can automate these processes—freeing your team from worrying about following up with customers so that they can focus on other mission-critical aspects of operations.
There’s no sense in spending a ton of time tracking down late payments if you don’t have to. Schedule a demo with us today to learn how you can use YayPay to transform your accounting department and accelerate your collections. We look forward to hearing from you!