Failure to collect accounts receivable (AR) in a timely manner can lead to myriad financial problems for your company, including poor cash flow and the inability to pay its own bills. Here are five effective ideas to facilitate more timely collections:
1. Create an AR aging report.
This report lets you see at a glance the current payment status of all your customers and how much money they owe. Aging reports typically track the payment status of customers by time periods, such as 0–30 days, 31–60 days, 61–90 days and 91+ days past due.
Armed with this information, you’ll have a better idea of where to focus your efforts. For example, you can concentrate on collecting the largest receivables that are the furthest past due. Or you can zero in on collecting receivables that are between 31 and 60 days outstanding before they become any further behind.
2. Assign collection responsibility to a sole accounting employee.
Giving one employee the responsibility for AR collections ensures that the “collection buck” stops with someone. Otherwise, the task of collections could fall by the wayside as accounting employees pick up on other tasks that might seem more urgent.
3. Re-examine your invoices.
Your customers prefer bills that are clear, accurate and easy to understand. Sending out invoices that are sloppy, vague or inaccurate will slow down the payment process as customers try to contact you for clarification. Essentially you’re inviting your customers to not pay your invoices promptly.
4. Offer customers multiple ways to pay.
The more payment options customers have, the easier it is for them to pay your invoices promptly. These include payment by check, Automated Clearing House, credit or debit card, PayPal or even text message.
5. Be proactive in your billing and collection efforts.
Many of your customers may have specific procedures that must be followed by vendors for invoice formatting and submission. Learn these procedures and follow them carefully to avoid payment delays. Also, consider contacting customers a couple of days before payment is due (especially for large payments) to make sure everything is on track.
Lax working capital practices can be a costly mistake. Contact Warady & Davis LLP at 847-267-9600 to help implement these and other strategies to improve collections and boost your revenue and cash flow. We can also help you with strategies for dealing with situations where it’s become clear that a past-due customer won’t (or can’t) pay an invoice.
Legal Notice: The materials communicated in this transmission are for informational purposes only and not for the purpose of providing accounting, legal or investment advice. You should contact your accountant or advisor to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an accountant-client relationship between Warady & Davis and the user or browser. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. Any accounting, business or tax advice contained in this communication is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Warady & Davis would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. © 2019 All Rights Reserved.