If your business operates by extending credit to customers, you know that a sale is truly not a sale until that invoice gets paid. Payment terms are sometimes necessary to garner sufficient business, which is beneficial to you, but probably not the most ideal way to operate—that would be getting full payment upon placing an order. Inefficiently managing your accounts receivables can spell big trouble for your cash flow situation, which can spell big trouble for your business. Here are 10 ways to improve receivables management and reduce the waiting time to get that sweet cash in the door.
If you are in the habit of doing invoices in batches, whether once a week or every two weeks,etc…break that habit really fast. Ideally, invoices should be sent out the same day your products and services were delivered. No need to add extra time on top of the number of days you offer in your payment terms to settle the bill, since most customers will wait until the very last day.
Offer Early Payment Discount
Poor cash flow management is often a bigger problem for businesses than lack of sales; offering early payment discounts is a great way to get that money in the door sooner. Sure, you lose a bit from the sale, but you will get that much needed money sooner.
Check Invoices before Sending
Mistakes on the invoice are a sure way to delay payment. Before sending them out, make sure that all the information is correct, namely that it is slated to go to the right person at your customer’s company. Getting it into the wrong hands usually equates to it not getting there at all.
Make It Easy for Customers to Pay You
The more payment options the better. Offer credit card, check, direct deposit to your bank and online payments.
Don’t Sit on Late Invoices
It can be uncomfortable to approach customers about past due invoices, but the sooner you get on it, the better. It may have just been an oversight and the customer will pay you right away. If it was intentional, seeing you jump on it immediately will likely push your bill to the top of the pile.
Get on the Phone
When it comes to following up with late payments, opt for the phone from the get-go. It is easy to ignore faxes, emails and letters, claiming they got lost in the shuffle or were never received.
Consider Reducing Terms
While net 30 is a standard payment term for many companies, it is not the only option available. If you really need that money coming in sooner, consider changing it to 10 or 15 days. On a related note, begin requesting deposits when orders are placed.
Be Flexible but Firm with Late Accounts
Things happen and companies, like individuals, can run into trouble paying their bills on time. If you run into this situation, it is important to be firm in requesting payment but flexible in trying to work with your customer. Offer to set up a payment plan if necessary.
Look Into Factoring
Invoice factoring may be an option to consider if you would like to get your money faster. Factoring companies buy your invoices at a discount and proceed to collect the payment directly from your customer. You receive a large portion minus the fees immediately, and the balance when the customer has paid. Typically, you will only be able to factor invoices of customers who have good credit and a history of paying you on time. This is a great way to get faster access to that all important small business capital.
Stop Problems before They Start
If you are not doing this already, make sure you are checking the credit of new customers before taking them on.
Kelli Cooper is a freelance writer who blogs about all things business.