Running a successful and balanced accounts receivable department can be a tall order. In fact, many companies feel helpless when it comes to collecting payments on time. This is due to the fact that more than one out of every three invoices an average business sends out are paid late.
When your customers don’t pay their bills on time, running a business becomes a lot more difficult. Without cash in the bank, it can be hard enough to cover your recurring operating expenses; investing in lucrative opportunities or paying for unbudgeted expenditures is entirely out of the question.
The good news is that while you can’t physically force your customers to put checks in the mail, you can employ a number of tactics to get a better perspective on your organization’s financial health and increase the chances you’ll get paid promptly.
Here are four ways you can improve your company’s receivables performance to accelerate your cash flow and give you the money you need to take your business to the next level.
1. Create an AR aging report
Do you know which of your clients owe you money? Do you know how delinquent certain accounts are?
If not, you need to start creating and maintaining aging AR reports. The reports provide insight into the age of the invoices you’re waiting to collect payments on, and which accounts are taking the longest to pay. With that information on hand, you can get deeper insights into your organization’s cash flow situation. You’ll also get an idea as to how your customers are doing financially.
Instead of letting cash flow problems blindside you, create aging AR reports to enjoy a better idea of your company’s financial health at any given point in time.
2. Be proactive with invoicing and collection
Is your company still relying on manual accounts receivable processes to invoice clients and collect and process payments? If so, it’s time to modernize your accounting department by investing in tools designed to make your accounting team’s job easier, while also ensuring you get paid faster.
For example, leading accounting automation solutions can automatically invoice clients and follow up with them at certain intervals.
Let’s say you invoice your clients and give them net 90 days to pay. With an accounting automation platform in place, you can remind your customers when payments are due in 10 days. If they don’t pay on time, you can automatically send follow-up emails a week or two after the due date has passed, reminding them of their delinquency.
In other words, you don’t have to worry about anyone on your team forgetting to send invoice-related emails. The technology takes care of all those responsibilities.
3. Take immediate action on past due receivables
No matter how great your receivables performance is, some of your clients won’t be able to pay you on time—at least every now and again.
You need to prepare for this unfortunate reality by creating a process your AR department will follow when receivables are past due. While you don’t want to harass your clients the moment a payment is late, you want to reach out within two weeks to let them know you’re waiting for their checks to come in. The sooner you follow up on a late payment, the sooner you’re likely to get paid.
4. Consider offering early payment discounts
No business wants to pay any more for a product or service than it absolutely has to, so one way to increase receivables performance is by offering early payment discounts to customers who send their checks in before they’re due.
For example, offering 2/10 terms on invoices should convince many of your customers to take advantage of a 2% discount if they pay their bills within 10 days. Sure, you will have to forego some revenue if you choose this route, but you should also expect to get paid much sooner than you otherwise would.
Need some more tips on what you can do to streamline and optimize your invoicing process to increase receivables performance even further? Check this out.