Your business may be seeing peak sales, but still struggling to have enough cash on hand to maintain comfortable business operations. If this sounds like your company, then the best solution is to accelerate your accounts receivable collection so you can turn sales into capital you can actually use to maintain your business.
There are many strategies to streamline invoice collection to get the money owed to your company quicker. We even list several popular strategies below, along with a few recommended services to consider. However, getting paid ahead of or at the point of sale is always the best way to streamline your cash inflow. But we don’t live in an ideal world and for many companies, upfront or immediate payments aren’t an option. As such, here are seven ideas to help you improve your accounts receivable collection strategies so you can turn your unpaid invoices into cash more quickly:
Strategy 1: Be prepared to turn down a sale if you don’t expect rapid payment
Some collection challenges can be avoided by choosing who you do business with wisely. You should carefully consider who you are providing goods or services to before you enter into a relationship with a customer. While it is tempting to try and make as many sales as fast as possible when operating a business, the resources and time required to collect certain payments can lead to significant operational waste.
If the potential customer has poor credit or gives off any sort of indication that they will not be able to make payments on time, you may want to consider not doing business with them. This is especially true for potentially negative interactions that will stress out your employees or lead to a bad business review or reputation hit. Even an accelerated receivables cash flow won’t sustain your business if you constantly have to resolve issues arising from bad customer interactions.
Easier said than done
Strategy 2: Send reminders more frequently
Some companies make the mistake of only sending out reminders on certain days of the month, or waiting until a certain amount of time that an invoice is overdue before sending a reminder to pay. While this may minimize the number of emails you have to write, fewer reminders means that your customers are more likely to forget to pay you. Good customers usually welcome friendly reminders that help them remember their payment obligations.
What is a good best practice? Send invoices as soon as you have fulfilled your obligations and send a reminder about a week before the invoice is due. Don’t wait until the start of the following month, or until the end of the week. If an invoice goes unpaid, send an overdue invoice reminder sooner rather than later.
Strategy 3: Make sure invoices are easy to pay
In connection to the previous strategy, it doesn’t matter how many invoice reminders you send if the process of paying invoices is difficult. However your collection of receivables is set up at your company, you should make it very easy for those who need to pay off their invoices to understand how much is owed and how to pay you when they’re ready to do so.
A great way to accelerate receivables is to have clearly itemized invoices. List each product or service rendered individually with a short name and description detailing what the item is. Don’t use shorthand, product codes, or anything the average customer wouldn’t understand while reading the invoice. Add the PO number if there is one to the invoice and check the instructions on the PO.contrat to make sure that the invoice is recorded by your client and added to the payment queue. Using easy to understand language can also prevent customers from being confused if their invoice amount ends up being more than they might have expected when it comes time to pay.
Strategy 4: Be flexible in your payment methods
One difficulty that often leads to delayed or missed invoice payments is when a customer is unable to pay via the requested method. Ideally, customers should know ahead of time what is expected of them, but people make purchases all the time without being aware of how they are supposed to pay.
If possible, offer multiple payment options to make it easier on your customer. This may include direct deposits, credit card payments, sending in a paper check, or some other alternative. A few of these methods may result in transaction costs, which may be why you don’t offer them regularly to customers. Be sure to carefully explore different payment facilitators and processors with your company when considering alternative payment methods for customers.
Strategy 5: Work out a credit or finance payment plan
Contact the customer, discuss their situation, and consider restructuring their credit plan. If no plan exists, offer to finance the purchase and give them the opportunity to pay it off in smaller chunks over time. While this isn’t a perfect solution, it often allows companies to collect payments without having to resort to third parties. This can also help your company save money, since many third parties charge fees or buy consumer credit at a lower price than the value of the goods or services you are trying to collect on. It also reduces risk; it is better to collect a fraction of your client’s receivables owed than to collect no receivables at all.
Strategy 6: Train your employees in accounts receivable collection
If you can afford it, consider hiring employees or training them to improve their accounts receivable collection abilities and work process. This can take many different forms, including:
- Seminars to explain the importance of accounts receivable collection strategies
- Restructuring and further training to establish accelerated receivables management
- Classes to encourage forceful but friendly collection from overdue customers
- Workshops to identify current challenges with your accounts receivable team
- Group sessions to allow team members to tackle different parts of the AR process
Depending on the size of your company, you may even have a dedicated team whose sole purpose is to focus on the collection of receivables for your company. Talk to them about the process, and find out what the team is doing well and what they are struggling with. Make sure they have the necessary resources they need to perform their tasks, while also verifying that they know their specific duties and what you expect them to accomplish at work.
Strategy 7: Consider an automated accounts receivable platform
Many large companies can afford to have a dedicated team of employees who follow up with customers to accelerate collection of accounts receivable payments. However, smaller companies or those operating on a tighter budget likely can’t afford dedicating manpower to such a task.
Fortunately, there is an affordable alternative that accomplishes the same thing. Consider an automated accounts receivable platform or software for accelerated cash flow management without having to invest in a dedicated AR collections team. Good accounts receivable automation software typically has AR collection techniques and features like:
- Process invoices rapidly with minimal human involvement
- Constantly make sure that invoices, credits, and payments match and stay up-to-date
- Provide workflows and reminders to employees to guide them in the AR process
- Send out regular reminders for upcoming and unpaid invoices
- Provide statistical analysis of payment trends, customer credit history, and more
- Long term storage of invoices, payments, and other key accounts receivable data
Check out the Gaviti Accounts Receivable Automated Collection Management Platform
If you want to accelerate your AR collection, then check out the Gaviti automated collection and management platform. We have designed our software with simplicity yet effectiveness in mind. By using our platform, you can streamline the collection process, process invoice payments faster, reduce work hours spent reviewing proper payments, and get real-time analysis of how payments are going in your company.
We here at Gaviti have developed our platform for all sorts of business sectors, including transportation and logistics, manufacturing, wholesale goods, high volume shipping and distribution, and more. No matter the size of your company, our platform will provide you with the tools you need to keep track of all of your invoices, process them as quickly as possible, and track outstanding customers who fail to make their payments on time.
Want to see if Gaviti can improve your accounts receivable collection strategies? Then book a demo to see Gaviti in action, or contact us today if you have any questions. We look forward to helping you streamline your AR collection techniques when you partner with Gaviti.