Your accounts receivable (A/R) collections process seems simple enough on paper. You provide services, send an invoice, and collect payment. Right?
Not so fast. Accounts receivable collection can take many forms, and many of them should be used in conjunction for the best results. Let’s improve your accounts receivable collections by taking a deep dive into various methods.
Top Methods Used To Collect Accounts Receivable
1. Calculate ART With A/R Aging Reports
The first step is to calculate the current payment status of all A/R in the company by creating an A/R aging report. This report tracks the status of your accounts and offers insight into your ability to collect funds on time with a metric called accounts receivable turnover (ART).
High ART rates mean your company has efficient A/R collections processes that work well. Your accounts are regularly “turned over,” which means you have few outstanding invoices to collect.
Low ART means you likely have a substantial number of unpaid invoices. This indicates underlying problems you’ll have to contend with, but no matter how the data shakes out, it’s important to know what you’re working with.
2. Offer Your Clients Flexible Payment Plans
When ART is low, it generally means clients aren’t paying as they should. While this isn’t your company’s fault, you can take steps to remediate the issue by offering different payment terms.
It may feel like a concession, but it’s hard to fit a diverse customer base into a one-size-fits-all payment policy. Each client may be from a different type of industry, each with its own culture and challenges. You can increase the odds of getting paid by developing payment plans customized to everyone’s best interest.
On another note, make sure you do your part in the process. Ensure all sent invoices are clear and complete with no missing details. If any of these mistakes cause your client’s accounting department to kick it out for further review, that delay is on you.
3. Sign a Contract or Create a Purchase Order Immediately
Contracts are an element of effective accounts receivable collection process that are often overlooked. If possible, get clients to sign a contract immediately, well before work begins. This is an easy way to guarantee payment security and avoid the stressors of working with delinquent clients.
Another method is to create and close a purchase order to ensure all details, including the payment terms, are agreed upon between the two parties. You should never presume your customer will remember any details, it’s up to you to include as much detailed and accurate information on the invoice as possible. The less errors on your invoices, the less time you will spend chasing these payments.
4. Be Prompt When Reminding Clients About Payments
For most companies, some late payments are inevitable. This is why every company needs a solid dunning process for collections efficiency. This is an outreach strategy in which you work one-on-one with late customers to understand their situations and develop solutions.
Ideally, you’ll craft each message with care and take each client’s unique situation into account. Not receiving timely payment for services rendered is frustrating, but a standardized dunning process can salvage business relationships in the long run.
5. A/R Automation
One of the single best optimizations you can make to your A/R collections process is to implement an automated accounts receivable solution. If you’ve never worked with a system like Gaviti, you might be surprised at the ways it can support the collection of accounts receivable.
The following tasks (among others) are ideal for automation:
- Collection team task management
- Real-time performance metrics equipped with actionable insights
- Dunning, email outreach processes
- Payment forecasting
- Risk scoring
Each of these processes can stimulate collections performance over time and are made easy with the right automated A/R management software behind you.
Coordinating A/R Strategies to Collect Accounts Receivable
Most companies will need to leverage several of these strategies to get a handle on their A/R collections processes. But among all strategies, automation has the most potential for long-term improvement. If you’re interested in better A/R performance, stronger cash flow, reduced reserves, and fewer write-offs, automation is your answer.
Contact our team at Gaviti to learn more about our solutions and what automation brings to your company.