REVISIT BILLING AND COLLECTIONS FOR STRONGER CASH FLOW
If your company is seeking innovative ways to stabilize revenue and improve financial health, consider reviewing your billing and collection efforts on a regular basis. Managing accounts receivable can be challenging in any economy, so, to keep your company financially fit, it’s a good idea to occasionally revisit your billing and collections processes to ensure they’re as efficient and effective as possible.
Resolve Billing Mistakes Quickly
The quality of your products or services, and the efficiency of order fulfillment and distribution processes, can significantly impact collections. You literally give customers an excuse not to pay when an order arrives damaged, late or not at all. Other mistakes include incorrectly billing a customer or failing to deliver on promised discounts or special offers.
Make sure you resolve billing mistakes quickly and ask customers to pay any portion of the bill they’re not disputing. Once the matter is resolved and the product or service has been delivered, ask the customer to pay off the bill. Depending on the circumstances, you may consider asking the customer to sign off on the matter by making a note on the final invoice. Doing so will help protect you from potential future claims.
Make Sure All Collection Efforts Are Timely
Sending invoices out late can also thwart your collection efforts. Familiarize yourself with industry norms before setting your payment schedules (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest customers have their own payment schedules, be sure to set them up in your system.
If you haven’t already done so, implement an automated collection system that generates invoices when work is complete, flags problem accounts and generates useful financial reports. Consider sending invoices electronically and enabling customers to pay online. You can still send statements out monthly as a routine reminder of balances due.
Regularly verify account information to ensure invoices and statements are accurate and get into the right hands. Be sure to set clear standards and expectations with customers — both verbally and in writing — about your credit policy, including pricing, delivery and payment terms.
Set Up Good Collections Procedures
Despite your best efforts, you’re still likely to encounter slow-paying customers. Here are some strategies to increase your chances of receiving timely payments:
- Request payment upfront. Ask customers for a deposit on each order or provide a service retainer.
- Reward timely payments. Give discounts to customers who pay on time or improve their payment histories.
- Charge fees. Assess fees or finance charges for past due amounts. Place extremely delinquent accounts on credit hold or adjust their payment terms to cash on delivery (COD).
- Stay connected. Make regular calls and send email reminders to customers who haven’t settled their accounts. If necessary, either you or the manager who works directly with the customer should try to resolve the payment issues with your lead contact at the company or even the owner. Consider executing a promissory note to prevent the customer from disputing the charges in the future.
- Get professional help. If your efforts aren’t fruitful, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.
- If an outstanding debt is uncollectible, you can write it off as an ordinary business expense. Be sure to document customers’ promises to pay and your collection efforts, as well as why you believe the debt is worthless.
Stay on top of cash flow
There is much about the current economy that’s unpredictable. So, it’s important for business owners to be proactive concerning the areas they can control. Good billing and collections strategies are integral to a company’s financial health over time.
If billing and collections is something you no longer want to handle for your company, reach out to Holbrook & Manter, we specialize in all accounting and tax services. We can handle all of this for you.