There are few activities as challenging and important for a business as accounts receivable management, and statistics prove it.
Delays of over 90 days in collecting payments are reported in almost 50% of small businesses. Even worse, around 25% of small businesses report having trouble collecting from at least some of their clients.
Late payments can be a real problem for your business, affecting capital and preventing you from properly managing cash flow.
However, there are practices your business can adopt in order to improve your receivables management and the efficiency of the payment collection process.
Of course, to improve accounts receivable management you must know what you’re trying to improve. Some areas to focus on are: knowing the related terms, assessing whether extending credit is an option and understanding the impact, knowing the company’s risk exposure, knowing the value and the number of the company’s transactions, monitoring margins, and tracking cash flow, receivables and debts.
Once you understand these, you can refine the practices that need to improve. Following are some of the best and easiest to adopt accounts receivable practices.
1. Establish a Strict Credit Policy and Transparent Payment Terms
If you want your customers to make timely payments, you need to establish a strict credit policy and inform your customers of it upfront. If you are worried about losing customers to your competitors, you can always analyze their policies and include similar or better terms.
Notify your customers of your credit policy in writing and have them confirm their understanding. Make sure the policy covers things like eligibility, application, amounts, deadlines, payment terms, and milestones as these are common areas of misunderstanding or vagueness.
You can offer special conditions to customers who have good credit history with you and leave room for some negotiation. Do not forget to establish penalties for late payments. You can also set early payment rewards to encourage quick payments.
2. Use Technology to Your Advantage
The first step to getting paid on time is issuing timely and accurate invoices, preferably through several platforms. You may not want to give up traditional mail invoicing, but you should offer to send invoices by email . This way, you can cater to your customers’ preferences. If your customers receive invoices in the most convenient way to them, it’s more likely you’ll receive on-time payments.
If you go paperless, you will save money by eliminating printing and mailing costs and save time by setting up templates that can be easily customized and personalized.
3. Accept Several Payment Methods
Instead of asking your clients to deposit money in your bank account, you can implement online payment services directly through your website. Give them the chance to pay by credit or debit card through your website or to pay using Internet payment services, for example, PayPal.
You can also set up installment payment plans. Consider applying finance charges when you need to compensate your business’s potential risk or loss. The idea is to make things easier for your customers without raising your own costs.
4. Maintain a Close Relationship with Your Customer
The better you get along with your customers, and the happier they are with your services, the more likely they are to make timely payments.
If they have cash-flow problems, they will likely prioritize payments. Maintaining a good relationship with their staff, especially the Accounts Payable person or team, can place you on the top of their priorities list.
Keep in touch with them and send an occasional greeting card to keep the relationship current.
5. Use Integrated Accounting Software
Perhaps you have always managed your accounts receivable the old-fashioned way – by using spreadsheets and customer contact checklists. But, as your business grows, this manual process does not easily scale and can become error prone and costly.
Investing in integrated accounting software that includes robust accounts receivable capabilities can make life easier by making the right information available at the right time for the right people. With sophisticated and integrated accounting software, like Denali from Cougar Mountain Software, you can:
- Create statement templates and customize them
- Generate payment statements, including invoice details and payment options
- Generate payment reports
- Create and print customer invoice mailing labels
- Store, access, and manage customer information, including contact details, credit limit, payments status, finance charges, etc.
- Enter and track an infinite number of customers, transactions, and open credits
- Set up alerts for customers who are late with their payments
- Assign and extend customer credit limits
- Apply late penalties and adjust calculations
- Establish and monitor early payment discounts
- Print upcoming sales material, greeting letters, and promotion brochures
If you want to learn more about how your company will benefit from the use of integrated accounting software and accounts receivable improvements, feel free to contact the team at Cougar Mountain Software. They can provide information about solutions for small business accounting software and can guide you through selection, installation, and training.
Call (800) 388-3038 to speak with a business and accounting expert.