Five Ways to Speed up your Accounts Receivables

April 22, 2022 | BusinessFocus-Business Focus

It is officially spring, in which many people tend to do a lot of spring cleaning in their household. Your business is no different. What strategies can you implement to clean up the process of maintaining cash flow in your business? This month’s article has a few great ideas!

Five Tried-and-True Ways to Collect Receivables Faster and Improve Cash Flow

By Rohit Arora, Forbes Contributor

Source: https://www.forbes.com

 

In today’s challenging economic times, managing cash flow is more important than ever. With price increases due to supply chain issues or the rising cost of labor, small businesses owners have seen their costs skyrocket. If the problem of cash flow delays drags over the course of months, an enterprise may find itself in serious financial trouble. Oftentimes, a root of the problem is having too much uncollected revenue. Managing cash receivables is both unpleasant and an unfortunate reality of running a successful business. No one likes calling anyone because they owe money, but if multiple customers are behind on their payments, then business owners risk having the same fate befall them. What is a business owner to do?

Five ways to speed up your accounts receivables

 

1. Secure Pre-Payment

Depending on the type of business or the size of the order, asking for a sizeable deposit before processing an order or beginning a project is a great way to keep ahead of cashflow. Offering a discount for advance payment is a way to incentivize customers to pay upfront.
Tip: Factor in acceptance of the discount when setting the initial price.

2. Set Payment Policies in Writing

At the very beginning of a new business relationship, provide payment policies in writing. Make it part of the onboarding process. This way, customers cannot claim they misunderstood the payment terms.
Tip: Be sure to mention upfront discounts and late payment fees in the document. Use underline, bold or italics, to make this part of the document stand out.

3. Invoice Promptly

Business owners sometimes have no one to blame but themselves for their cash flow issues. Specifically, those who are slow in sending out their invoices can expect to have slow payers. After all, if getting paid doesn’t seem to be a priority for your company, why should it be a priority for theirs? The buildup in your Accounts Receivables could be resulting from poor billing procedures.
Tip: If you are doing your own books and continuously falling behind, have your accountant or CPA do it for you. This is an investment worth making if it speeds up the payment process.

4. Shorten Payment Terms

By shortening the payment terms, a business can set itself up for quicker payment. Some clients are prompt payers. Consider changing the payment term from 30 days to “due upon receipt”.
Tip: Changing the payment term on existing customers might antagonize them. However, if you find it necessary to manage a rough financial period, then be sure to tell them about the change in policy and why it has been put in place.

5. Penalize Late Payers

Anyone who has ever received a delinquent notice from the IRS knows how quickly late fees and interest can pile up. Business owners certainly don’t want to become like IRS agents but adopting late payment fees could be effective in securing prompter payment of accounts past due.
Tip: Send reminders that late charges will be incurred for delinquent payment.

Part of the process could be that the late-paying customer is stalling for time. Be diligent. If they set a payment date and miss it, send a letter asking for immediate payment and include a copy of the invoice. If sending a copy of the original invoice, stamp it as “past due.”  

If accounts become more than 90 days past due, and it begins to seem like the customer is unlikely to pay the bill anytime soon, it is imperative become more assertive. Spell out what the next course of action will be, such as hiring an attorney or sending to a collection agency.

Tip: Don’t be afraid to make aggressive moves if you feel that the late payer is not taking the matter seriously. Longer term customers may deserve the benefit of the doubt or more dialogue.

Accounts Receivable are part of every company’s balance sheet. They impact the financial health of all businesses. Whether you are trying to pay off your own debts or applying for a small business loan to expand, make it a point to manage your receivables wisely.