In my last article, I talked about how much cash you should keep in your personal and business checking and savings accounts. Now, I want to talk to you about how to get paid. More specifically, you need to get paid in a timely manner in order to build up your cash reserves. The CFO or department head in charge of your treasury oversees your cash flow, which includes your accounts receivable. This AR division of your company is directly responsible for collecting customer payments. Thus, it’s directly responsible for the health and well-being of the cash flow into your business. To keep that cash flow coming in, I have 19 tips for improving accounts receivable collections.
First, build strong, healthy relationships with your customers, clients, or patients through a Customer Relationship Management software (CRM system) and through social media. The closer you are to customers, the more likely they are to pay you.
Then, set up a professional credit application to vet customers. If you approve customers’ creditworthiness, have them sign a contract, and use professional invoicing software to bill them.
Start by extending moderate terms to customers. Then, let them work their way to more flexible terms as they prove they can pay properly.
However, as you offer credit terms to customers, make sure you don’t over-extend credit to them. You want to reward long-term customers, but you don’t want to harm your cash flow by offering too-lengthy payment plans.
Next, start emailing or faxing customers copies of their bills. Expediting how quickly customers receive their bills can improve how quickly you receive customers’ payments.
If you send invoices electronically, you can change terms from “due in 30 days” to “due upon receipt.” Collecting receivables faster can revitalize your cash flow.
Besides updating payment terms, you can update your billing cycle. Rather than waiting to bill customers at the end of each month, bill them once their jobs are completed.
Once you send initial invoices, don’t wait for customers to pay you late. Send friendly reminders through your CRM system or through email to remind them of upcoming bill due dates.
Furthermore, offer your customers several different ways to pay their bills to make it more likely they will pay quickly.
If customers are having trouble paying their bills and can’t get approved for credit, then you might consider offering them in-office installment plans. Getting some money in small increments is preferable to getting no money.
Offering discounts or other incentives to customers who pay on time or who pay early can increase your chances of getting paid quickly. Similarly, adding finance charges to customers’ accounts when they fail to pay on time can push them to pay on time or to pay quickly.
Once you find out that a payment is late, don’t wait. Contact the customer immediately to collect payment because the longer you wait, the harder it will be for you to collect.
Some customers may not realize their payments are late. Therefore, constantly remind them that payments are due or payments are late. A simple reminder letter may accomplish more than you realize.
If you’ve sent a reminder letter and had no response, pick up the phone and make a call. Be ready to offer multiple payment options, and be ready to accept payment.
Oftentimes, though, when you make collections calls, you will hear excuses for why customers are not paying. Be prepared for those, and require some type of action from the customers.
Yet, when you make contact with customers to remind them about late payments, stay professional. Hopefully, you’ll see them again. Therefore, you don’t want to say or do anything that could harm your relationship with them or keep them from buying your goods or using your services again.
Remember that even the best people fall on hard times. Satisfied, long-term customers are a valuable asset to your company’s revenue stream and cash flow. Thus, don’t hold grudges if people pay a little late, and make sure you continue to fulfill your obligations to them in a timely manner.
It’s okay to up the ante when necessary. If customers are not paying their bills and you have reminded them and called them, it’s time to try something else. Consider reporting their late payments to credit bureaus which affect customers’ credit scores. Or, call a debt collection lawyer to help you take legal action.
If you’re having multiple issues with late payments or delinquent accounts, don’t be afraid to ask collection agencies to manage or help with your accounts receivable.
Any and all of these 19 tips can improve accounts receivable collections. Trust me, just one of these tips may be the “tiny” issue you’re having in your organization. Therefore, crackdown. Get organized, and get personal. Stay in contact with your customers; yet, stay professional. You have the power to improve the cash flow into your business. Take back that power today.
Be sure to join me in my next article as I discuss Accounts Receivable’s companion – Accounts Payable!