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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 History
Before 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 Terms
Let 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 Invoicing
If 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 Options
Some 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.)
Make things easier for your clients and you’ll boost your company’s A/R profitability.
5. Send Past Due Reminders Quickly
Make it clear to clients that on-time payments are a priority. You’d think this is a given, but people are people – and when the service provider takes their time to send past due notices, it’s a signal to the client that they can operate on the same timetable. Set up an effective dunning process for tardy payments and get after them whenever they’re late. Doing so can provide a noticeable improvement in your DSO, as well as your accounts receivable collection process overall.
Going Beyond Accounts Receivable Management Best Practices
A/R goals such as DSO improvement and establishing automated accounts receivable collection are within the reach of most companies. In most cases, all they need is a helping hand to show them how to go beyond best practices and establish more forward-thinking processes that set them up for success. Gaviti has years of experience helping companies through such decisions, and we’ll bring that expertise to work for your company. Contact us to learn more about our A/R optimization solutions.
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