The timely collection of accounts receivables — money owed to a company by customers — is imperative to grow any business. How a business will survive during the COVID-19 situation directly depends on its cash flow. Although improving accounts receivable (AR) is an ongoing process, we’re sharing a few ways to boost collections faster so cash flow can improve.
Establish an Effective Billing Process
Always issue invoices quickly and accurately as soon as work is completed or an order is fulfilled. Send easy-to-understand invoices, include your terms clearly, and send invoices by email when possible. It’s worth asking for confirmation of invoice receipt to reduce the likelihood of problems and delays from an early stage.
Simplify your billing structure and keep payment terms short (such as monthly) to expedite the invoicing process. Maintain accurate customer data (payment terms, credit limits, email addresses, etc.) within your billing and collection system. Perform regular audits to maintain the accuracy of your client database. Make sure you address the invoice to the right person to facilitate payment – if you’re not sure, give the customer a call to check.
Simplify the Payment Process
Make it easy for your customers to pay by offering a wide range of payment options, including cash, check, credit and debit cards, online money transfers and digital payments. Using electronic billing systems as e-invoices can reduce delivery time and allow customers to download invoices directly into their accounting systems. Provide a quick link to pay in reminder messages or emails.
Swiftly Handle Clients Who Frequently Pay Late
It’s essential to follow up regularly with clients who pass the payment date. Send payment reminders periodically to delinquent accounts via check-in calls, letters, emails or messages after sending an invoice. Offer discounts to customers to pay promptly or in advance. Charge interest or late fees on late payments or cut off credit to overdue clients to minimize late payments.
Create and Follow Credit Policies Strictly
A good AR system starts with a thorough policy for invoicing. Create clear policies for payment terms, discount rates, who gets the credit, how much credit can be issued, and contract periods, as well as dispute resolution procedures. Your AR policy should mention how quickly you will issue customers an invoice and enforce those standards rigidly.
Track Payments Carefully
Create an AR aging report, which tracks and measures the current payment status of all your customers. There are software programs and apps made specifically for AR tracking, but you can also use an Excel spreadsheet. Another way is to calculate the Accounts Receivable Turnover (ART) ratio — the number of times per year that a business collects its average AR. A high ART ratio indicates that the company is efficient in collecting funds in a timely manner, while a lower ratio can signal the need to reassess the collection strategy or reevaluate the terms for extending credit for longer periods of time.
Regularly Review the Credit Limits
Regularly audit your master data, credit terms and the AR process to identify slow-paying businesses or customers with abnormal credit limits. There are multiple indicators that can be used to assess risk, including business credit scores and ratings, past-due accounts, trade references, financial statements, liens and legal judgments.
Automate AR Processes
Payment and accounting software can automate workflows via such tasks as auto-generating invoices based on key event triggers, matching receipts in the accounting systems, and managing credit and collection activities. It lets you develop Key Performance Indicators to check the overall collection scenario, and send customized reminders to customers.
Retain Customer Relations While Boosting AR
To improve your accounts receivables while also ensuring you maintain excellent customer relationships, consider these best practices:
- Set and enforce credit limit policies
- Improve the invoicing process or change the billing cycle
- Routinely follow up after sending an invoice — keep an interactions record
- Help customers find financing to speed up the collection process
- Offer a payment plan for outstanding balances
- Revise customer payment terms or policies
- Outsource AR management processes
- Take partial payment in advance for larger orders or long-term contracts
- Be professional while also leveraging your legal rights.
