A common pain point for many companies is a lack of cash flow. There are plenty of possible reasons for cash flow issues. Many of them are attributable to how collections and accounts receivable (A/R) processes are handled. Here are a few ways to improve accounts receivable collections that can boost your cash flow.
5 Strategies for Effective Accounts Receivable Collection
1. Accurately track your accounts receivable collection procedures
It might sound simple, but a key part of improving accounts receivable collection techniques is to accurately track everything coming in and going out of your A/R department. Do you know which accounts have outstanding balances? How long have they been outstanding, and how often is the client delinquent? A/R managers should have these answers for every account.
Use accounts receivable collection software to run analytic reports that highlight payment trends like these. You can also set up automated notifications that alert you when customers are overdue (or are soon to be overdue) with their payments, giving you more information for your follow-up strategy.
2. Begin each service arrangement with clear contracts
Prior to any client work, make sure you provide prospects with all relevant information regarding your services. Give them an estimate of expenses and go over the details, giving them room to compromise if needed. In some cases, making slight accommodations in your A/R processes can be a better strategy for earning a customer’s long-term loyalty.
At the same time, work with your legal team to develop a contract or engagement letter that delineates these arrangements.
3. Establish simple processes for invoicing/reminders
A/R efficiency is all about risk mitigation. It’s essential to set and adhere to a scheduled process that ensures everything goes out on time. But don’t stop with invoicing; be proactive about payment collection. Contact clients prior to their due dates to remind them about upcoming payments, and should payments become overdue, make contact as soon as possible to discuss remediation.
Get in the habit of sending notices when payments run late to emphasize their importance to delinquent clients. This also provides a valuable paper trail for reference, should the issue get escalated in the future. If escalation is required, contact clients via email with the following info:
- Accumulated interest or fees
- Dates and locations of service
- Description of services rendered
- Invoice tracking number
- Principal amount
Then thank the client for their quick remediation and offer to speak with them over the phone to go over the details, if needed.
4. Reimagine your payment strategy
If clients have problems paying, consider alternative payment strategies that reduce risk on your end. You could ask clients to pay in installments throughout the service arrangement, or possibly make a deposit before work starts.
These can be big adjustments to your accounts receivable collection techniques, so if you aren’t ready for this big of a transition, consider a smaller move, like shortening your payment terms. Over time, you’ll find the right combination of payment strategies that let you maximize payment adherence without compromising on your customer relationships.
5. Adopt accounts receivable process automation
One of the easiest ways to increase A/R efficiency is to leverage accounts receivable collection software that offers automation of key processes. By investing in A/R automation, you can automatically generate invoices, monitor payment histories, send reminders for overdue payments, and more, all from a single application or platform.
A/R automation has come a long way over the past few years to offer improvements to nearly every part of your A/R processes. These tools eliminate the need to spend hours on rigorous, manual collection tasks and can even reduce the risk of data errors by taking the human element out of the equation. Overall, it’s a system that results in higher efficiency and better cash flow, no matter what your industry.
Is Your A/R Strategy as Effective as It Could Be?
Accounts receivable collections best practices sound easy to implement, but many companies struggle to update their outdated workflows. In most cases, it takes the impetus of a new software solution or automation tool to help businesses break free of their bad habits. Solutions like Gaviti offer an easy way to achieve end-to-end A/R efficiency across every stage of your process.
Don’t wait to improve your company’s A/R collections methods. Book a free demo of our platform and see how a few simple adjustments can boost your company’s cash intake.