How to Improve Accounts Receivable at your Business
When you own a business, cash flow is crucial. You need to get paid to keep your business going, and you need these payments to be timely so you can budget properly and afford your ongoing expenses. Accounts receivable issues can be very detrimental for a business. If you can’t count on getting paid on time, it’s hard to manage your operations, pay your employees, and keep your business going.
Here are some tips to help improve your accounts receivable collection.
Maintain Healthy Business Relationships
It’s not always the result of a bad business relationship when a client doesn’t pay, but if you are able to form strong relationships with your clients and customers, the likelihood of them paying on time is greater. Try to resolve any issues before you invoice your clients. Be clear about your payment schedule, ask if there is anything else you can do to satisfy their needs, and keep communication open and honest throughout the entire process. This will increase the likelihood of a client paying when they should.
Use the Right Tools
One of the keys to getting paid on time is making sure that your invoicing process is fast and straightforward. If you take several days to create an invoice, a few more to mail it, and then it takes several days for the invoice to arrive, for instance, you’re slowing down the accounts receivable process. Automate aspects of it and use technology to speed up the process of creating and sending invoices.
You’ll also want to make sure that your customer information is accurate. Having the wrong names, addresses, phone numbers, email addresses, etc. on file will slow down the accounts receivable process.
It’s also important to have an up-to-date accounts receivable report that tracks the terms and payment status of all of your invoices. This will allow you to catch potential collection problems early and stay on top of your billings and payments before you run into serious issues.
Reduce Payment Terms
Depending on who your clients are, you may be able to improve collections by offering shorter payment terms. If your billings are net 30, clients may receive the invoice and put it aside, knowing that they have a while to pay. Then it may slip their mind. If you reduce your payment terms, you keep your invoices fresh in your client’s minds and encourage them to pay more quickly.
An alternate way to do this is to offer a discount for early payment. For instance, if you offer a 2% discount for paying within 10 days instead of 30, you’re likely to receive your money faster. Of course, there is a cost to this on your end, but you’ll also cut down on chasing clients for payments and improve your cash flow, so it may be in your best interest.
Offer Several Payment Methods
If you offer your clients multiple ways to pay (cheque, credit card, PayPal, electronic transfer, etc.) they’re more likely to pay on time. Paying electronically is often much faster and simpler than writing out a cheque and placing it in the mail, so you can speed up the payment process by offering this as an option. Plus, the more payment methods you accept, the most likely you are to have a method that easily fits into your client’s processes.
Hire an Accountant
Managing accounts receivable takes a lot of time and effort. If you’re spending time creating invoices, monitoring them, communicating with clients, following up, etc. then you’re taking time away from the core aspects of your business. If you turn your accounts receivable collection over to an accounting firm, you improve the process and free yourself up to spend more time running your business.
Plus, an accountant will have a lot of experience in handling accounts receivable, so they could give you some good advice to streamline your processes. Find out more on how an accountant can help your business.
