This blog comes as a guest post from John Rampton, CEO of Due.com. John Rampton is an entrepreneur, investor, online marketing guru, and startup enthusiast. He is the founder of the online payments company Due. Follow John on Twitter at @johnrampton.
Nolan Bushnell, the founder of Atari and the Chuck E. Cheese restaurant chain, has a saying that all business owners should memorize: “A sale is a gift to the customer until the money is in the bank.”
While collecting accounts receivable, aka the outstanding invoices a company has or the money the company is owed from its clients, the task may be overlooked or set aside, but it’s absolutely necessary. When you don’t have enough operating cash you’re impacting the bottom line of your business, and when cash flow is poorly managed you’re putting your business in jeopardy.
Here are 10 tips to help you manage your accounts receivable, while also improving your cash flow:
1. Use top-notch invoicing software.
The first place to start in effectively managing your accounts receivable is by making the switch from paper-based invoicing to online invoicing. For starters, mailing out your invoices physically is more time-consuming and expensive since you have to purchase ink, paper, and pay for postage and wait for the invoice to arrive and then have the payment sent back.
With online invoicing, you avoid those additional costs, and more importantly, you can get paid more quickly—sometimes in the same business day. Many invoicing services allow you to set-up recurring payments, send out automated email payment reminders, and easily see which invoices have been paid and which ones have not.
In short, using cloud-based invoicing software saves you money, time, improves cash flow, and keeps your accounts organized.
2. Set-up a professional credit application.
Remember, extending lines of credit to a client or vendor is a privilege, not a right. You and your business have control over which clients or vendors to extend credit to and what their lines of credit will be. You can get a better understanding of their credit by asking clients fill out a professional credit application. In addition, it’s prudent to monitor the payment history of your clients—are they consistently on time in their payment? Delayed?. If the clients don’t miss any payments, you may want to consider raising their limits and offering more flexible terms.
3. Make your policies clearly known.
You should make your payment policies known to any client, customer, or vendor prior to starting any service. This includes the types of payment that you accept, when the payment is expected, incentives like discounts for early payments, and any penalties that may apply when an invoice is past due, such as late fees, discontinuation of service or collection efforts.
Sharing this information beforehand prevents miscommunication or an excuse when you send them an invoice.
4. Double-check your invoices and learn your clients’ payment procedure.
Another way to avoid any delays and speed up the payment process is making sure that there aren’t any errors. Double-check your invoices to make sure that they’re clear, easy-to-understand, include all required information, and are going to be sent to the right individual.
You should also find out all of your clients’ payment procedures so that both of your schedules are in-sync. For example, if they are on a 30-day cycle and only pay invoices on the first of every month, then you would want to invoice them prior to the first.
5. Don’t wait.
There have been several studies that have found that the longer receivables go uncollected, the less likely they are to ever be collected. Due discovered that if you haven’t been paid within 90 days, only 18 percent of those invoices will ever get paid.
Don’t wait until an invoice is past due. Send out automated reminders prior to the due date, and don’t hesitate to send an email or pick-up the phone immediately when the due date has passed.
6. Have a collections plan in place.
You’ve sent out reminders and have repeatedly contacted the client or vendor. And, they’ve yet to pay the invoice. What’s next?
Instead of scrambling last minute, you should have collections plan in place so that you can handle this matter as efficiently and quickly as possible. This could include taking legal action against the individual if you had a contract, such as taking them to small claims court, sending the client to collections, or just writing the non-payment off as a business debt.
You could also consider invoice factoring. This is where you sell your invoices at a discount to an invoice factoring company in exchange for a lump sum of cash.
7. Be firm, but flexible.
There are certain circumstances where a client isn’t a deadbeat, but rather it has just fallen on hard times and can’t pay 100-percent of the invoice right now. If that’s the case, then you could set up a repayment schedule with the client. However, it’s your responsibility to hold the client accountable. If it misses a payment, you may have to go back to your collections contingency plan.
8. Set limits.
If a client hasn’t paid an invoice, and your emails and phone calls have been ignored, then it may be in your best interest to stop working with them until you’ve been paid. It just might not make sense for you to keep providing these client free products or services.
9. Always remain professional.
It’s understandable that you’re upset and frustrated when an invoice isn’t paid. But, remember, you can’t let these emotions get the best of you. Always remain a professional since these aren’t just potential long-term customers, they could also be friends or potential customers. In other words, you don’t want to burn any bridges by saying or doing something that you’ll regret later.
Dwolla’s ACH API has been helping businesses and platforms get paid for over a decade. Dwolla is an expert in the game and can help you understand how to use bank transfers in your process. Reach out to learn more, below.
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