Sales and marketing can be easily identified as the top priority in growing a business. You built your business around a product or service in order to attract your target market, gain new customers and continue to develop your company. In fact, the profitability of your business depends just as much, if not more, on accounts receivable (A/R) as sales and marketing. The sooner you can receive payments from your customers, the more easily you can invest in new employees, quality improvement and overall higher customer satisfaction.
Here are 5 simple ways to increase cash collections for your business.
A "cash collection cycle" is defined as the typical amount of time that it takes to collect on invoices through accounts receivable. A company's cash collection cycle may affect the business' ability to obtain credit or capital investments. With proper invoicing, your accounting team can increase cash collections and speed up the cash collection cycle.
- Prompt Invoices - The quickest way to receive payments is to invoice as promptly as possible. You may also set up regular invoicing cycles (2x/month) to ensure you are invoicing at timed intervals.
- Clear Payment Terms - Make sure payment terms are clearly defined up front (at the point of origination, contract or agreement).
- Delivery of Invoice - The delivery of your invoice will determine how quickly the invoice is paid. Options include invoicing in person upon service or product delivery, email or regular mail. Make sure you are sending the invoice to the person responsible for payment.
- Descriptive invoice- The more detailed and accurate information you can provide in the invoice, the more likely it can get paid in a timely manner. Be sure to include your contact information, description of the service or product, amount due and date due.
Your accounts receivable team is not the only team representing your company. The more you can educate your sales team or account managers of your customer's accounts and your A/R process, the more likely you will be paid. Also, remember to educate your customer on your payment terms and collections process.
- Sales team - An informed Sales Team can assist in your accounts receivable collection efforts as another reminder and face of your company. They can also communicate payment terms with your customer from the start of the relationship.
- Accounts Receivable - Your A/R team should be educated on your accounts receivable processes and collections policies. If theses policies have not been pre-defined, your A/R team should be educated on best practices and what cash collection cycle is expected to keep your company within budget.
- Customer - Your customer will learn how quickly you wish to be paid by what you teach them. If you delay in invoicing, they will assume payment isn't urgent. If your payment terms are clearly defined and stated in a proposal or contract and you are invoicing regularly, they will know what is expected of them.
Communication with the proper responsible party can go far in speeding up your cash collections cycle. Build a relationship with your customer's accounts payable person or department and communicate regularly.
- Payment policy - Define your policies and procedures for late payments. As an example, if a payment is 15 days late, send an email. If 30 days late, make a phone call. When 45 days late, mail a letter and make second phone call. When payment is 60 days late, send a final notice including suspension of service and collection agency turnover.
- Automate - Another way to ensure that you are communicating regularly with your customer is to utilize a CRM or accounting software. This software can be used to establish a workflow that will help automate customer notifications.
- Reminders - For larger invoices or customers, you can also establish communication with gentle reminders. For instance, you can confirm payment date and be proactive in learning of payment challenges from your customers.
- Document - Keep notes on all communication with your customer, especially if you suspect payments will be delayed. This information is vital to the collections process.
Collecting on invoices may seem obvious but some companies payment processes can be challenging to the customer. Here are some ways to ensure faster collection of payments for your business.
- Flexible Payment options - Offering a variety of available payment options will allow your customer to pay in a way that works best for them.
- Automated Payments - If it's possible, offer your customer the option to save a credit card or direct payments from their bank account. Automated payments are perfect for the forgetful customer and can dramatically quicken your cash collections process.
- Financing - Some businesses offer financing to their customers for large invoices. This option creates a payment plan that offers benefits for both your business and your customer.
- Deposit or Split Payments - For project work, some businesses may opt to take in a deposit or split payment before beginning work with the understanding that final payment is due after the work is completed.
As part of your accounting teams A/R process, there should be an established collections policy. Knowing when to escalate accounts can be helpful in expediting recovery of those past due amounts.
- Collections specialists - When collections are proving difficult to your general accounting team, it could be helpful to train a few select collections specialists within your organization. These specialists will be specifically trained to "ask for money" and recognize when it's time to escalate outside your company.
- When to send to collections - Your accounting team's payment policy will define when the account should be escalated to an outside collections agency. For example, after 60 days non-payment, the customer would be notified that the account will be turned over to an agency and their service would be suspended.
- Audit trail - When sending the account to a collections agency, also send the customer's contact information and an audit trail of all collection attempts.
- The sooner, the better - A collection agency's success depends on the information they're provided and the age of the past due account. The sooner the collections process can be escalated to a professional agency, the higher the success of recovery.
Expediting your accounting team's cash collections cycle can prove an efficient way to continue the growth and success of your business. Your investments, company credit and bottom line depend on an efficient process and quick cash collections.
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