If you’re a company selling goods or services on credit, chances are, so much cash is sitting idle on your balance sheet. A healthy cash flow is vital to improving operational efficiency, and one way to free up that trapped cash is through effective accounts receivable (AR) management.
Receivables are amounts you’re legally owed, amounts you’ve worked so hard for. Therefore, it’s only wise to put all measures in place to ensure that your customers pay on time.
Be very clear about the payment terms from the get-go.
Right at the very beginning, leave no room for guesswork when it comes to your AR management and credit collection processes. Take the time to sit down with the client and explain your policies. Address any questions or confusions they might have, so you’re on the same page before finalizing the agreement.
The credit agreement must be very clear about your payment terms, and whether or not late payments incur any penalties.
Send timely reminders.
It happens all the time. A customer forgets about an invoice that’s almost due because the invoice was sent to them three weeks prior. Sending the invoice early is okay, especially if you use snail mail instead of email. But remember also that a lot can happen between the time the invoice is sent and when it’s due. So send an invoice reminder a week, or at least three business days, before the due date to make sure they don’t forget.
A reminder also allows you to confirm whether the invoice has actually been received. If not, take the appropriate action, such as send them another invoice via email, fax, or next-day courier delivery, whichever applies.
Follow up diligently.
On exactly the day the invoice becomes past due, start following up with the customer. Remind them of the late payment, just so they know you’re serious about getting them to pay.
In most cases, customers will promise to send over the payment as soon as possible, or forward the payment details if payment has already been made. Consistent follow-ups allow you a sneak peek into the status of your receivables, such as if there’s a chance a customer will default, or if they’re simply hitting a temporary financial snag.
Toughen up, when needed.
Reminders and follow-ups help your customers understand that you’re serious about getting paid. But when push comes to shove, be willing to toughen up. It’s you losing hard-earned money, not them.
The tone of the collection letter you send them 90 days after due date should be sterner than the one you sent when the invoice was just 10 days late. Get a lawyer to draft a reminder letter containing the necessary legal language to make them realize, once and for all, that not paying will cost them more in the long run.
Get to the bottom of the issue.
Customers are not always trying to scam you when they can’t pay on time. It’s possible that they’re having trouble with their receivables, too. If this isn’t a customer that’s consistently been giving you headaches, do everything in your power to keep the relationship intact while attempting to get your money.
For example, offer them an easier payment plan, such as extending net 30 accounts to 60-day terms, and other similar options.
Get a collection agency to help.
Onboarding a collection agency to deal with late or unpaid receivables should be the last recourse – only if you can no longer handle receivables management in-house or if you’re collecting from customers you’d never want to do any future business with. Some collection agencies tend to be aggressive and can alienate your customers. Or worse, even damage your brand’s reputation.
As such, remember to hire a third party only if your time and money are more valuable than your relationship with your customers.
How Apruve can help
Your receivables management performance can greatly be enhanced with technology. Apruve’s B2B credit management system, for example, automates the invoicing process while allowing you 24/7 access to all your records in the cloud. Its invoice financing functionality also cushions your company from the risks involved with extending credit to customers, ensuring you’re paid within 24 hours after the goods are shipped out.
Several factors can hamper the success of your receivables management process, including a faulty dispute resolution process, poor tracking, technology tools that are difficult to work with, and even communication lapses. One thing that can’t be stressed enough, though: Maintain good working relationships with your clients. Satisfied customers are more likely to prioritize payment to companies that consistently perform better than expected.