4 Ways to Streamline Your Accounts Receivable
The task of improving your cash flow health takes several plans to materialize. A good place to start is by streamlining your Accounts Receivable. An efficient collection system helps in shortening your cash flow cycle. It means more cash will find its way back to you in a shorter amount of time.
1 Develop a collection plan
It’s always a comfort to have a plan when you are starting anything. For a collection plan, you can begin by asking 3 questions, where does your business stand? What is the payment history of your client? Finally, what are the standards in your market?
First, figure out if your business can afford to give a shorter credit term. Then you can adjust your decision according to your client’s history. If your client has a history of on-time payments and your business cash flow is fairly stable, you have leeway to give them a longer credit term. But if your client has a history of delayed payments, you might need a stricter payment plan. Finally, compare your billing practices to those found in your field. It goes back to the first question. Depending on what you can afford, determine if you are able to grant longer terms for your client to outmatch the terms your competitors are giving out.
2 Move to electronic Invoicing
Once you’ve agreed on your terms, you should consider sending all invoices electronically. By eliminating paper invoices and moving to e-invoicing, it gets you paid faster. E-invoicing could be done via email or by your accounting system which has pre-installed programs that do this for you.
You can also try Electronic interfaces allowing customers to set up payments via Automated Clearing House (ACH) instead of writing checks, this can speed up cash flow.
Online money-management programs can also be a good option for you. You might go well with an online system such as FreshBooks or Outright.
If you don’t like maneuvering new processes, you can consider outsourcing your billing. By outsourcing, you lessen your load to focus on other details of the business.
This step also helps your customers who could be using accounts payable automation tools in processing their payables. This way, your systems match, and both ends of the process can fuse seamlessly.
3 Optimize Billing Process
After choosing your preferred tool, you don’t just forget about it. Don’t we all wish it were that easy? But there is still some effort needed on your part. Monitoring your accounts should be a priority. For example, when a new account opens, you need to check if the terms are correct, set up the timeline, and determine when to send the bill.
Being clear about the payment schedule will help you and your client avoid misunderstandings. When you’ve figured out the timeline, stay consistent. Setting up a follow-up schedule is just as important. Don’t let your receivables sleep. Be proactive with slow-paying clients.
Finally, focus your collection efforts. Consider the size of the receivable and ask yourself, is the effort you’re exerting to collect it proportionate to the cash inflow it could possibly bring in? Otherwise, consider letting a third party collect the items.
4 Incentivize Early Payments
Creating a discount program for quick-paying customers can help increase cash flow. If your means permit you to do so, consider rewarding your on-time customers. The program can include either foregoing late fees or a discount on early payments.
You don’t want a late fee that will turn off your client. It should only be high enough to deter them from paying late, not discourage them from working with you. Always put your late fees in your contract to be transparent. This helps put more weight on your follow-up email as you remind them of the late fee when due dates arrive.
Discounts are great tools. People always love deals. You can offer a fixed amount or a percentage when giving the discount but make sure you double-check on your margins to see if you can afford them.
The invoice you send should be as complete as it could get. Be transparent and always be clear of the terms.
In invoicing, it is best practice to include every relevant piece of information. This will avoid future misunderstandings and close the gap to faster billing.
It’s always tricky dealing with billing. It could gain you cash inflow but could lose you some customers if not handled properly.
A good billing process is the start of financial health. You should take advantage of all means to get that cash faster but always considering your business goodwill and customer relations.