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It goes against conventional wisdom but cash crunches don’t always result from a company growing too quickly. In fact, it often results in customers paying slowly. As a company grows it’s easy to for sales to get locked in Accounts Receivables (AR). For instance, if a company spends X worth of invoices every month and clients take an average 2 months to pay bills these results in 2x thin unpaid invoices at any time. The situation could worsen when companies extend credit past the time limit that’s agreed on.
As time passes the amount of money your company has tied up in AR can be a big amount. If you’re able to free up that money you might be able to provide your company with cash flow that can be used for critical business functions. This is possible by making the collection of accounts receivable faster
It’s important to realize that fast/timely collection of AR is critical for any company. Collecting AR in the fastest time possible is a company involving the entire company instead of just the AR department. It’s important for stakeholders from all of the company’s departments should help to create a comprehensive strategy for collections. Here are some ways you can make your AR collection more efficient:
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Some of your top customers might be having their own cash flow problems. When that happens, you should consider changing the payment terms so you can keep the customer and keep getting funds from them. An example is a phased plan that gives you 30% of the money due within 30 days, 60% after 60 days and the total amount within 90 days.
Top invoices should include all important info. That includes quantity sold, payment terms, or hours billed. It’s also important for invoices are precise in terms of the contact info and mailing address. Wrong contact details can cause the invoice’s delivery to be delayed. This can result in late payments. Clear invoices can help to prevent follow-up questions for products/services. This can delay the payment process. It’s also critical to send out bills after products/services are delivered. When this happens, there is a greater chance customer will pay you within the agreed-on time.
It’s not enough to negotiate payment terms. It’s important to make sure they’re paid on time. Several companies don’t make sure the customers stick to the terms of payment. Customers are frequently permitted to pay long after the due date. It’s important to send out polite/constant reminders after payments are due. This is an effective method to take in order to make sure your company gets paid within a reasonable time.
Aging reports help to put customers under various payment categories. For example, customers can be devised into 30, 30-60 or 60+ days. This tells you quickly which clients are making late payments, the amount they owe, and how many days have passed since the due date.
This provides you an insight into how long the accounts are overdue. It also shows the AR outstanding amount. This info can help you to focus on collection efforts when they’re required. For example, when billing customers on the first day of the month aging reports show that the account is then 30 day sold after the month is over.
It’s important to record all interactions including promises/commitments that the customer makes. That includes the date they promised to make a payment and the payment method they’ve agreed on. Then the next time your company contacts them you can remind them about the commitment. This is an effective way to collect payments more easily.
If your software is outdated it can cause your entire process of account receivable to slow down. If you update software it can provide better insights into how many invoices are sent out, the number of invoices paid, number of invoices viewed, and the number of invoices outstanding.
In the case, customers don’t reply to letters/emails you should try to call them to inform them of their account’s late status. In this situation, it’s very important not to be threatening but instead polite. Make sure the customers have the benefit of a doubt. If you have to make repeat calls you could become stricter in your communication. Other options include SMS, fax, and IVR.
You could speed up the collections process by negotiating the best terms that can keep your customers happy. In several industries, companies use net-30 payment terms. Still, if you can get customers to agree to the net -15 or net-15 it can help to boost your cash flows. That’s because the collection period is nearly 50%.
Being strict about payment terms isn’t always a good idea. It’s important to get the wording right. Its possible payments can be delayed if the words aren’t polite or their terms aren’t reasonable. For example, if you use terms like “due immediately” your customers might get upset and make payments late. You have options like giving a 10% discount if customer spay within 10 days rather than 30. Make sure to do the math to figure out if this is a practical idea.
If the methods your company is using isn’t’ effective in collecting payments you could hire a collection agency. A collection agency can use other techniques to make sure the customer is likely to make their payments. This is important because it will probably result in better results, which are important.
It’s critical to make a plan for the collection process. Make sure specific people are picked to process so others are able to focus on daily activities. List down various procedures for the process and inform the workers responsible for the process. For example, they could call clients 7-10s before the due date to make sure the products/services have been received and the invoice. Clients can also be asked when they’re planning to make their payments.
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