Five Tried-And-True Ways To Collect Receivables Faster And Improve Cashflow


In today’s challenging economic times, managing cash flow is more important than ever. Whether it is price increases due to supply chain issues or the rising cost of labor, countless small businesses owners have seen their costs skyrocket without a corresponding rise in revenues. While many companies can absorb short-term cash flow issues, if the problem drags over the course of months, an enterprise may find itself in serious financial trouble.

Oftentimes, a root of the problem is having too much uncollected revenue. Managing cash receivables is both unpleasant and an unfortunate reality of running a successful business. No one likes calling anyone because they owe money, but if multiple customers are behind their payments, then business owners risk having the same fate befall them and see their credit scores drop. What is a business owner to do?

Five ways to speed up your accounts receivables

1. Secure pre-payment.

Depending on the type of business or the size of the order, asking for a sizeable deposit before processing an order or beginning a project is a great way to keep ahead of cashflow. Consider making it a permanent part of your sales effort. Offering a discount for advance payment is a way to incentivize customers to pay upfront.

A tip: factor in acceptance of the discount when setting the initial price.

Another way that discounts can be used successfully to improve cash flow is to offer them as incentives for payment of accounts that are past due. In such cases, offer only a small discount. When delinquent clients believe they are getting a deal, they may become quicker in paying. They key is do not offer these delinquent discounts as ongoing policy for customers who will take advantage of the cut rate (while holding back on payments to improve their own bottom lines).

2. Set payment policies in writing

At the very beginning of a new business relationship, provide payment policies in writing. Make it part of the onboarding process. This way, customers cannot claim they misunderstood or act surprised by the payment terms.

A tip: be sure to mention upfront discounts and late payment fees in the document. Use underline, bold or italics, to make this part of the payment document stand out.

3. Invoice promptly.

Business owners sometimes have no one to blame but themselves for their cash flow issues. Specifically, those who are slow in sending out their invoices can expect to have slow payers. After all, if getting paid doesn’t seem to be a priority for your company, why should it be a priority for theirs? The buildup in your Accounts Receivables could be resulting from poor billing procedures.

A tip: if you are doing your own books and continuously calling behind, have your accountant or CPA do it for you. This is an investment worth making if it speeds up the payment process and improves cashflow.

4. Shorten payment terms.

By shortening the payment terms, a business can set itself up for quicker payment. Not every company sits on its bills. Some of them are prompt payers. Consider changing the payment term from 30 days to “due upon receipt,” for new customers.

A tip: changing the payment term on existing customers might antagonize them. However, if you find it necessary in order to manage a rough financial period, then be sure to tell them about the change in policy and why it has been put in place.

5. Penalize late payers.

Anyone who has ever received a delinquent notice from the IRS knows how quickly late fees and interest can pile up. Business owners certainly don’t want to become like IRS agents but adopting late payment fees could be effective in securing prompter payment of accounts past due.

A tip: Send reminders that late charges will be incurred for delinquent payment.

How to manage the relationship with delinquent accounts.

What if a customer if a chronically late payer… and the behavior starts getting worse?

One thing to keep in mind is that you will catch more flies with sugar than salt. Be nice about it if the customer is just a few days delinquent. Mention it in a phone call politely and remind them that payment has not been received yet. Suggest paying at that moment via credit card. If the customer is 60-90 behind, tell them that you are trying to clear up your Accounts Receivable and ask when you can expect payment.

A tip: Show empathy and mention that you understand that COVID and its subsequent impact on the economy may be a factor in the delinquent payment. Then segue into how the pandemic is hurting your company, too.

Part of the process could be that the late-paying customer is stalling for time. Be diligent. If they set a payment date and miss it, send a letter asking for immediate payment and include a copy of the invoice. If sending a copy of the original invoice, stamp it as “past due.”

If accounts become more than 90 days past due, and it begins to seem like the customer is unlikely to pay the bill anytime soon, it is imperative become more assertive. Then spell out what the next course of action will be, such as hiring an attorney or sending the bill to a collections agency.

A tip: Don’t be afraid to make aggressive moves if you feel that the late-payer is not taking the matter seriously. Yes, consider factors such as the length of the relationship. Longer term customers deserve the benefit of the doubt.

Accounts Receivable are part of every company’s balance sheet. They impact the financial health of small businesses (and big ones, too). Whether you are trying to pay off your own debts or applying for a small business loan to expand, make it a point to manage your receivables wisely.

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