The collection process significantly impacts cash flow at your business. Is it any wonder financial professionals spend so much of their time monitoring and controlling it? Over time, this has led to a set of accounting control best practices. These efforts at collection control have yielded the best results for organizations around the world. Before applying them, remember that each business is different. Always consider compatibility with your business structure, industry, and goals.
1. Review Your Lending Policies
When determining how to improve the collections process, start at the beginning. For most companies, that means looking at their lending policies. Are they still feasible? Will they still meet the needs of your customers? Customers’ ability to pay may have changed since you last revised your policies. Perhaps you need to offer more flexible terms now. If so, make the necessary changes and document them.
Lending policy changes are just one example of how the current environment may require different actions than in the past. For example, the COVID-19 pandemic has forced many businesses to reassess their operations and make changes accordingly. If the pandemic has impacted your business, take that into account as you review your lending policies in conjunction with any changes you made to how the business operates.
2. Liaise With the Sales and Marketing Team
Your sales and marketing team are on the front line, interacting daily with customers. They can provide invaluable insights into customer behavior and trends. Talk to your sales and marketing team if you notice a change in customer payments. These professionals could shed some light on the situation or even warn you ahead of a potential decline in payments.
For example, selling seasonal products, you may see a dip in payments around the holidays. This is normal and the company should have existing plans to address this. However, if you see a sudden or unexpected drop in revenues, that could indicate a problem. Your sales and marketing team can tell you if there’s a change in customer behavior that could explain the decrease in payments.
Your sales and marketing team can also work with you to determine the ideal customers for your business. Attracting the right people from the start can reduce business risks and improve the likelihood of getting full payments on time. For example, you might identify the ideal business size, industry or even geographic location. They can target these specific markets during their campaigns.
3. Offer More Payment Options
Remember to be flexible with payment methods when learning how to control account receivable processes. For example, some customers prefer to pay by cash, while others want to use direct deposits. The more payment methods you can accommodate, the lower the payment friction for customers. No hassle these additional methods create for your business could be worse than the hassle of not receiving payment.
Recently, most customers have asked for electronic payment methods, so consider using online payment methods such as ACH or wire transfer. This can make it easier for customers to make payments and may help you receive payments more quickly. Here are some additional options:
- Debit card
- Credit card
- Money order
If customers are having difficulty making payments, consider offering a payment plan. You could even barter products or services. It can help customers stay current on their obligations and avoid default.
4. Fine-Tune Your Communication Strategy
Clear communication is essential for on-time collections. Your invoices should be accurate and clearly state the payment terms. Customers should know when payments are due and the consequences of late payments. It’s also important to let them know how they can make payments. Add all this information to your invoices and make it easy to find on your website.
Additionally, create a process for following up with customers who don’t pay on time. The A/R team should do this follow-up professionally and courteously. Avoid being aggressive or threatening. Instead, try to work with the customer to find a solution that meets their needs and yours.
Finally, use automated reminders to help you keep track of payments. This can free up time for your staff to focus on other tasks. Automated reminders can also help you stay consistent with your follow-up.
5. Leverage Technology
Technology can play a significant role in the collection process. It can help you automate repetitive tasks, stay organized, and improve customer communication. When considering how to improve the collections process, look for opportunities to leverage technology.
Many different types of software can help with collections. Some businesses use customer relationship management (CRM) software to keep track of customer interactions and payments. Others find that accounting or invoicing software makes it easier to manage receivables and send customer reminders.
Consider what software would be most helpful for your business and integrate it with any existing systems you have in place. Our customers at Gaviti have found that investing in accounts receivable automation has had the greatest impact on receivables control. Book a free demo to try it for yourself.