The ability to collect receivables in a timely fashion is critical to the financial health of any small business. Properly managing cash inflows allows a small business to meet its obligations and make desired investments for growth.
Making adjustments to your accounts receivable practices helps maintain a steady balance between money coming in and money going out. Since the older a receivable becomes the more likely it is to prove worthless, increasing your customers’ speed of payment with these accounts receivable strategies can improve the strength and vitality of your small business.
Assess credit worthiness. Require a credit application and references from all new customers prior to delivery of goods or services. Some companies also request a deposit for orders from new customers. By only offering sales-on-account to financially stable customers, the quantity of delayed payments should decline.
Issue timely invoices. Optimize your billing procedures to ensure invoices are submitted in a timely manner. Send out invoices on a weekly basis to promote steady cash flow. Billing early in the month can also foster prompt payment by better aligning with customers who perform a once-a-month check run.
Offer incentives or impose interest or surcharges. Consider rewarding customers with a discount for quick remittance or charging a penalty for late payment. Many accounts payable departments are trained to expedite payment of invoices with these terms.
Act quickly on past-due accounts. Send out “late” or “overdue” notifications immediately after a missed payment, or better yet, call your customer directly and alert them to the delay. For notoriously late but loyal customers, you could institute a “reminder” call in advance of due date to ensure payments aren’t forgotten. You may also want to establish a more aggressive collections policy that begins sooner in the past-due payment cycle.
Talk these strategies over with your accounting department and determine which of these practices, if not already utilized, can be incorporated into your current system. Then create an action plan to help improve the financial fitness of your small business.