Most small- to medium-sized businesses and entrepreneurs agree that one of the biggest challenges – and the least enjoyable facet – to running a business is billing. Because most small business owners and entrepreneurs would rather focus their time and energy on growing their businesses, billing often falls on the shoulder of small administrative teams or falls by the wayside. As a result, invoices begin piling up, accounts become
On top of that, even if a business owner finally gets around to sending out invoices, they most often land in clients’ inboxes where they sit for a significant amount of time, which hurts the business’ accounts receivable rate or the rate in which the business is paid from the time the invoice is delivered to the client.
Of course, most small business
Although accounts receivable management seems like a concept that would require the expertise of an accountant or an MBA, it’s not as complicated as it may seem. In fact, once you have a system and a process outlined, accounts receivable management is easier than you think.
Here are seven easy tips for solid accounts receivable management.
1. Prioritize Billing and Invoicing. Again, although billing is not the most enjoyable part of running and managing a business, it should be made a priority. Cash flow is a very important part of any business, so it’s important to get into the habit of invoicing as soon as the work is finished. Additionally, the sooner you send an invoice for a job that was recently completed, the more likely the customer will pay in a timely manner while the job is still fresh in his or her mind.
2. Build a System. It can be easy to lose track of invoices, bills, and customers if you don’t have a numbering system or if you are disorganized. Once you establish a numbering or invoicing system, consistency is key for
3. Make it Easy for Customers to Pay. In addition to building an internal invoicing system to ensure proper accounts receivable management and timely payments, making it easy for customers to pay invoices will also increase the likelihood of on-time payments.
For example, consider setting up electronic payment methods, such as an accounting or bookkeeping system with electronic payment method options and capabilities for customers. Some systems include accounting or bookkeeping systems, such as FreshBooks or QuickBooks or even PayPal. The easier you make it for customers to pay their invoices, the faster they will be paid.
4. Send Reminders. We all get busy in life. It’s important to remember that your customers are people, too, and they might forget about paying your invoices. Therefore, it doesn’t hurt to send out reminders periodically to help light the “polite” proverbial fire beneath your customers. In fact, taking the time to send out reminders or
5. Be Clear About Payment Deadlines. Many businesses set payment terms when sending invoices to clients. For example, the most common
For example, invoices that are over $500 might have payment terms of “Net 30” whereas invoices that are under $500 might be “due on receipt”. All in all, regardless of your payment terms, make sure they are clearly noted on each invoice so that your customers immediately know when their payments are due.
6. Review Your Pricing Model. Many businesses are inconsistent in what they charge their clients. Of course, every client’s budget is different and your business may offer different deals or discounts at different times of the year or as part of a referral program. Therefore, every client might be charged differently.
However, it may be time to review your pricing model. Are you charging enough for your products and/ or services? Are you selling your products and/ or services based on value? If you are unsure of what to charge or if you are worried about overcharging, then analyze what your competitors are charging versus the value customers receive from working with your business compared
If your customers believe they are getting a good value by working with your company, then they are likely to pay your invoices on time.
7. Don’t Forget Your Manners! Last but certainly not least, don’t forget your manners when invoicing your clients. Having a strong relationship with your clients is one of the best ways to keep your accounts receivables flowing.
Businesses that use polite language when delivering and/ or following up on their invoices, such as “please” and “thank you” go a long way in getting paid in a timely fashion.
In fact, according to an article published by Forbes, FreshBooks performed a study on businesses and accounts receivable. It was found that businesses that use polite language on their invoices see faster payments on an average of 5 percent. Turns out, your "Ps and Qs" matter.
Accounts Receivable Management: From Chaos to Cash
In the end, billing and invoicing might be a pain or a challenge for many small businesses and entrepreneurs, but it doesn’t have to be. By making invoicing a priority, setting up a cyclical system, getting organized and simply being polite, you will be amazed at how quickly you get paid so you can spend less time on billing and