Your business needs a steady cash inflow for daily operations and the potential for future growth. Part of the cash management process includes establishing an efficient method of collecting and monitoring your accounts receivable, which will help to minimize your borrowing costs.
Accounts receivable is the amount of money your customers owe you after purchasing your goods and services on credit.
Here are 6 practices for effectively managing your accounts receivable:
- Create a formal, written policy for collecting payments and enforce this policy.
This policy should define the following processes: invoices, statements, a way to track aging invoices, a system for making reminder calls, pre-written collection letters, and a system for recording payments and deposits.
If you already have a policy in place, review and update this policy to ensure it’s up to date and effective.
- Establish expectations with your customers and employees.
Once you’ve established a formal collection policy, discuss these expectations with your customer to make sure they understand what is expected upfront. Also, ensure your employees are familiar with this policy so they can answer any questions or concerns a customer may have.
- Send out invoices as quickly as possible.
As soon as you complete a project, send out your invoice so you stay top of mind with the customer. Bill your customer the amount you quoted them and if there are any changes, contact them to make them aware. When you send out the invoice, contact the customer by phone, email, or text message to make sure they received it and to see if they have any questions.
- Make it easy for your customers to pay.
Giving your customers multiple payment options makes it easier to do business with you and increases your chances of getting paid faster.
- Offer your customers a discount for making their payment in a certain timeframe.
For example, if your customers pay in 10 days they get a 2% discount. By offering an incentive such as this, you’ll collect cash faster.
- Automate your accounts receivable process.
Using automation will help to reduce errors and the time spent processing invoices and payments. For example, emailing invoices to customers and providing online payment options will help encourage them to pay faster.
Collecting receivables is a challenge that affects many businesses. Implementing these practices can help you to better manage your accounts receivable and ensure a consistent process allowing you to collect payments promptly.