Sales are great, but more companies fail due to poor cash flow than a lack of sales and revenue. For a company that boasts a steady stream of clients, running out of money can be particularly frustrating. That’s precisely why establishing an effective accounts collection process is a crucial part of running a successful business. Improving and optimizing accounts collection brings many benefits to the table. A streamlined and efficient process can positively impact marketing, sales, customer service, and overall business operations. It is well worth the time and effort to improve it. Start with these 5 tips to improve and speed up your accounts collection process.
Maintain Accurate Customer Data
Centralizing the master data process to ensure the accuracy of customer account and information is a crucial part of establishing and maintaining an effective accounts collection process. Inaccurate addresses can cause invoices to be mailed to the wrong place, resulting in late payments.
Customer accounts should be audited on a consistent basis. Any changes to customer data should be properly documented, and controls should be put in place to prevent unauthorized people from being able to access or edit data. Along with maintaining accurate customer data, also ensure that your accounts receivable software is up to date. Old and outdated software could cause your entire process to slow down.
Send Clear, Easy-to-Understand Invoices
The clearer your invoices are, the more likely your clients will be to pay them correctly and on time. Make sure your invoices include all relevant information. Itemize the services provided to a client and provide a clear description of what those services were and when you performed them.
Include the total charge for all products and services at the bottom of the invoice, making sure to include any relevant taxes and other fees. If taxes or other fees are added, make sure to list and explain them on each invoice.
It’s important to include any relevant information your client will need when they pay the invoice including how they can make the payment. Use plain language on your invoices to make things as clear as possible for your client. Rather than using “Net-30” on the bottom of the invoice, write “payment is due within 30 days.” Another option is to write an exact due date on the invoice so that there’s no room for confusion over when payment is due. Always include your contact information on your invoice.
Incentivize Early Payments
While it’s in your company’s best interest to speed up the collection of accounts receivables, it’s often in the best interests of the companies you work with to put off paying invoices until the due date. A good way to speed up your collections process is to offer your clients a reason to pay their invoices early.
For example, offer a small discount to clients if they pay their invoice within 10 or 15 days of receipt. Just make sure to consider the cost to your company before offering any discounts. Another option is to add late fees. While late fees may not get clients to pay early, it will discourage late payments. You might tack on a late fee of 2 percent if the invoice isn’t paid within 15 days after the due date. After that, the late fee might jump to 5 percent.
For many industries, net-30 is the standard payment term. Another way to speed up your collections process is to negotiate for a shorter payment term, perhaps net-15 or net-20. Shorter payment terms will increase your cash flow because your collection period is cut almost in half.
Follow Up With Delinquent Accounts
If the due date has come and gone and you haven’t received payment from a client, you want to get in touch with a reminder as soon as possible. It could be that the check is in the mail or that your client had mixed signals and thought the bill was already paid. Try multiple methods to get in touch with a client who is behind on payments. If you have been communicating or sending invoices via email, maybe give a quick phone call to confirm that the invoice was received and when they plan to pay.
Creating an aging report will help you place your customers under different payment categories. You can divide clients into groups like 0-30 days, 30-60 days, 60+ days. This can tell you at a glance which customers are late in their payments, the amount owed by them, and how many days have passed since the due date. With this information, you will be able to focus your collection efforts where they’re most needed.
Create a Collections Process
Having a collections process in place is critical to any good business. While enforcing payment terms isn’t fun, it is necessary. Too much leniency leads to cash flow problems that can severely hurt your business. Remember, not receiving payments on time implies that you’ve given your client an interest-free loan.You might choose to assign a specific person to the collections process. Create a list of procedures and make the process clear to those employees that are responsible. By having a plan of action, you will guarantee that customers are consistently contacted at the right time in regards to their invoices.
Having account collection processes in place will speed up your payments and make sure you have the cash you need. Your personal Safeguard consultant can help you with the invoices, statements and other business forms you need to run your business smoothly. Ask about custom forms that can help build your brand and keep operations on track.