November 24, 2020
Optimizing accounts receivable collections should be an ongoing goal for every company. But it’s not the easiest thing in the world to accomplish. Research shows that the rates of overdue B2B receivables has increased over time, and along with it, the challenges companies face related to sustainability and cash flow. To help, we’ve broken down a few of the best ways to boost your collections process as well as improve key metrics such as days sales outstanding (DSO), turnover rates, average days delinquent, and more.
1. Evaluate Financial and Credit HistoryBefore onboarding new clients, make sure you perform in-depth financial background checks into each and every company. Look into their credit histories as well, and keep an eye out for long lists of unpaid invoices – a clear red flag about that business’s creditworthiness. You could even consider getting feedback from other companies they’ve done business with. The more information you have, the less A/R risk you’ll need to worry about. If your credit team is pulling a potential new client’s credit report from D&B (or somewhere similar), make sure you’re looking at these reports closely! Don’t be afraid to ask for financial reports or bank sureties, either. Clients will appreciate your due diligence and in the longer run, you’ll be strengthening your partnership.
2. Have Clear Payment TermsLet no company claim ignorance as an excuse! Set clear payment expectations from the beginning of your business relationship, and stick to those standards. Make sure they’re clearly outlined in your contracts and stated again on purchase or order forms. Clients should have a good estimate of what they’ll be paying each month, and payment methods should be discussed/agreed upon by both parties.
3. Speed Up Payments With Electronic InvoicingIf you’re still working with snail mail, you’re wasting a lot of time waiting for invoices to make it through the postal system. Set up electronic invoicing options to speed things along and improve your DSO. Clients will be receiving their invoices faster and on a regular basis, making timely payments even easier for them.
4. Establish Multiple Payment OptionsSome companies opt to keep their payment options minimal, but having only one form of payment can be a major inconvenience for some clients. The A/R collections process will be slowed considerably when you force clients to adopt strict payment methods. Consider building out your options as is feasible for your team:
- Electronic fund transfers
- Bank-to-bank deposits
- Credit cards
- E-payments (PayPal, etc.)