When it comes to finding ways to manage cash flows better, accounts receivable often remains under the spotlight. It is the most significant part of bookkeeping. If payments for services or products sold to clients are not received on time, the organization may suffer due to a lack of money. Without the flow of funds, the firm won’t be able to pay vendor bills, taxes, and manage payroll. Put simply; businesses need to recover their pending bills on-time for ensuring a steady stream of cash. Here’re seven tips that can help in ensuring the same.
Receivables should not be left uncollected for longer
Monitoring past due receivables is crucial because acting quickly on such accounts can help recover full or at least partial payment. Receivables that remain uncollected for the first thirty days from the due date are less likely to be recovered.
The person-in-charge of monitoring and processing accounts receivables should ensure that he or she contacts the client immediately on the next day after the due date in case of a missing payment. It is advisable to remind the client that they may need to pay a late fee.
Let someone from the accounts receivable team have an open conversation with the client. Let them elaborate on the reasons behind the delay. The step can help in forming a strong relationship with the customer. If a considerable number of days have passed after the due date, the team should start sending firmer communication. Sending letters and emails concerning possible legal action for failing to make payment by the set deadline can help.
Use early payment discount as a motivation factor
Early payment from clients can help in boosting the cash flow. Thus, offering a small discount on prompt bill payments can be a good idea. However, if the business works on a tight margin, even a small discount of one or two percent can be a lot of money. It is advisable to ensure offering a discount on each bill payment is a viable option for the business or not.
Ask consumers to enroll for electronic invoicing
Most companies around the world urge consumers to opt for paperless statements. Besides the environmental factor, paper-based bills take too much time to reach the customer. So, firms should process invoices electronically, and notifications, alerts for the due payment can be sent via app notifications or email.
Let consumers make automated payments via PayPal, credit card, or electronic funds transfer. Offer incentives for doing the same. So, the customer won’t have to worry about the bill due date or about recurring service charges.
A phone call can be the best form of timely communication
Calling the customer can be the most effective way of communication even in this era of app notifications. Emails can land in spam folders, while paper-based notices may remain in the mailbox for ages. On the other hand, calling the customer on their number can be the best way to remind them about the debt. Consumers are often found to be more responsive to calls.
Avoid extending credit facility
Not just big traders but even small startups end up extending credit to clients and then spend resources in tracking, recovering the money when customers fail to follow the contractual obligations of making timely payment. Having strong, detailed policies for extending credit to selected customers can help employees and stakeholders make sure they provide the facility to the right set of people. Display all the policies on the website in the public domain so that customers won’t feel they are being singled out or mistreated.
There is no point in giving credit to consumers who are unlikely to pay. Only those with a superb payment history and consistent flow of orders can be deserving candidates.
Most companies prefer to extend credit to individuals or firms who provide proper credit references, tax identification numbers, and have a good credit score.
Timely invoicing and late fees
Delayed payments can create more problems for small firms with limited cash flow. So, timely invoicing remains crucial for staying afloat.
Charging a late fee on payments made after the due date can help in deterring consumers who intentionally make late payments as a part of their accounting policy.
Outsource bookkeeping procedures to virtual accountants
Small businesses often operate without an in-house team for managing finance and accounting tasks. They merely seek services of accounting firms while filing taxes. That’s where problems start accumulating.
If you are a startup with limited team strength, you should consider outsourcing bookkeeping procedures, including accounts receivable management, to firms that offer bookkeeping services. Such virtual accounting firms can help your business select and implement accounting software solutions for optimizing accounts receivable processes. Once applied, the software can automatically generate invoices, send payment reminders, and generate various financial reports within minutes.