One common strategy many small business owners use to beat the competition is extending credit to their customers. For instance, some companies allow their customers to delay payments for the products or services already provided. This customer retention strategy, however, is not without risks. Improper management of accounts receivables may result in cash flow problems. If your business has thousands of dollars in delinquent accounts, something is wrong with your receivable management policy. Hiring a debt collector for the job would be a good idea, but there are certain things you can do on your own to better manage your accounts receivables.
Tips on How to Better Manage Your Accounts Receivables
• Develop a credit policy – Your business should have a well-thought-out credit policy in place. Make sure your credit policy clearly states who to extend credit to, and terms and conditions for extending credit. Consider creating a customer credit application form and get it filled by every customer who you extend credit to. That way, you will have all the necessary details about your customers, including their names, addresses, bank references, credit history, and income sources. Your credit policy should also have detailed instructions about how to deal with late-paying customers and what actions should be taken if a customer refuses to pay.
• Create and send out invoices on time – One way to improve your chances of getting timely payments from customers is by sending them detailed invoices on time. Make sure you provide all the necessary information on your invoice, so that your client can approve and process your payment quickly. For instance, your invoice should include your contact details, date of the invoice, details of the products or services provided, unique referenced ID, payment terms, and due date. Try to avoid vagueness as much as possible. For instance, “$5 will be charged on all payments after due date,” is more specific than “penalties will be charged for late payments.”
• Start following up early – It is always a good idea to send remainder a few days before the due date rather than waiting for an invoice to become past due. Start following up early, but make sure you don’t offend the customer. If the invoice is already past due, you can send an email asking whether they have received the invoice or have any questions about it.
• Continue sending reminders – Not getting timely payment from clients is a common scenario, so you should be prepared for this. Simply start by continuing to send reminders to the client who has not paid on time. Try to get a written confirmation from the client and ask for a specific payment date. Keep a record of his responses for future reference.
If a payment is due for more than 90 days despite several reminders, perhaps it is time to seek professional help. Make sure you choose a collection agency that has years of experience in providing receivables management services. The goal here is to collect your accounts receivables without hampering your customer relationship.
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