Don't Let Your Receivables Get Out of Hand
There is nothing worse then when a customer does not pay you or fails to pay on-time. It is easy to refer to these people as deadbeats, cheats or other names. For those that are truly preventing you from receiving the moneys that you are owed, this can very well be the case. However, in the majority of situations that involve late payments, the customer is not the only one to blame. How you prepare and run your receivables process will actually determine your recovery rate and days sales outstanding.
Here are the some tips to help you manage your business receivables:
1. Adjust Your Attitude.
Businesses that have pride in the product or service that they offer and simply expect that their customers will pay invoices on time typically get paid much faster than the businesses that have already decided that customers that pay slowly are a part of life.
2. Doing Business With Just Anyone
It can be very easy to just consider any customer that contacts your business. After all more business is supposed to mean more money. However, you must keep in mind that if the customer fails to pay, you are not only losing the profits of the sale, you also lose the money that you spend on supplies resources and time. As a result, taking on any new client that contacts you is actually risky to your business. It is very important that you thoroughly vet any customer that contacts you that you might consider doing business with. You should get in touch with their references, perform a credit check or whatever other measures are required to make you confident that the customer will make payments on time.
3. Not Stressing Payment Details
Many customers make an excuse for late payment because they have not received the invoice. Now in some cases, these customers may not be telling the truth. However, ultimately, you need to ensure that it is what they are doing. Some invoices can end up at the wrong address. You need to determine that you have not only submitted their address details correctly, but that the address submitted is actually the address for BILLING. You need to make sure that invoice reaches the right person. In many cases, the person that you have been corresponding with isn't actually the person responsible for submitting payments for bills. Another thing is that you should also ask customers before you send an invoice if there is anything they need specifically on the invoice. In many cases, payments may be slowed because the customer needs information on the invoice that hasn't been added (i.e. a P.O. number). You should directly ask and verify all of the important details with your customer before you ever submit the first invoice.
4. Assuming Everyone Remembers The Appropriate Payment Date
It is fairly comment that when you receive a bill, you look at it and then tell yourself that you'll pay it later and then completely forget that the bill was ever received. You've probably done this many times yourself. It is a common business practice to remind customers of late payments. However, what if you break away from the norm and think about your business proactively? If it is the week before the customer's payment is due and you still have not received the funds, then you should send out a friendly reminder email that indicates the upcoming due date for payments. You are doing your customers a favor and also saving yourself from more work later on.
5. Provide a "Grace Period" Before You Follow-Up
In some cases, business owners release that a payment is past-due. However, they might decide to wait a bit to see if the customer will go ahead and submit the payment without any additional actions. Having a conversation about a delinquent account isn't fun. However, there is no reason not to make them the top priority on your list of things to do. In fact, the older the debt becomes, the harder it is for you to collect. As a result, the day that the invoice becomes late, you should get in touch with the customer immediately. You should let them know that you are serious about receiving payment.
This follow-up also helps to reveal the deeper reasons why they have not submitted payment. Did the customer forget? Did the wrong person receive the bill? Is the customer waiting on THEIR customer for payment? These conversations can help to clarify where your money is. Structured follow-up decreases Days Sales Outstanding, and the last thing that you want is for your cash flow to be tied up longer than it has to be.
6. Immediately Writing Off Debt
In some cases where you have discovered that you are doing business with a person that is a complete deadbeat and you believe that you have done all that you can, it can be tempting to just forget about the debt and never think of it again. However, there are some huge implications for your finances when you write off debt. Therefore, you should not consider this step until you have truly exhausted all possible actions. Third-party collection agencies and debt collectors will take a portion of the amount that is owed. However, if this person is successful in collecting the funds, you will see more of the money than if it had been written off. You should always consider such options before giving up.
7. Improve your control over things.
Speed up your internal process for billing. The faster the customer receives an invoice, the faster you will receive payment no matter what the payment cycle of the customer is.
8. Consider submitting invoices electronically to avoid delays with delivery.
However, you should make sure that you have a clear delivery path that will allow your invoice to get past email spam blockers and other filters. It is best to obtain permission before you email invoices. Some customers still consider email invoices as a hassle and may "lose" them.
The cash flow cycles for your business can help grow or destroy your business. Are you making these mistakes? If so, you should review your receivables management in order to determine how the processes can be changed to ensure that you are not stopping your customers from submitting timely payments.
Need some help with your business accounting? Call us at (407) 680-0900 to discuss your options.