Regardless of company size, accounts receivable plays an instrumental role in the success, growth and overall operation of any business. If anything hinders that continuous flow of funds, it can put your business at great risk. However, the last thing that you may be able to do is spend even more money in payroll dollars just to enhance the efficiency of your accounts receivable operations. How can you achieve this goal? The six tips outlined below will at least get you off to a great start:
Maintain Realistic Expectations
One of the most important parts of this process is your expectations. In a perfect world, a customer will immediately pay an invoice the same minute of the same day he or she receives it. However, as most people know, there is no such thing as a perfect scenario in the business world. You must focus on how your specific industry performs on average when it comes to accounts receivable.
For instance, according to Forbes, auto rental/leasing companies, trade/technical schools and management companies had the highest average durations in August 2015 – extending up to over 125 days of waiting for payment. Even though privately held companies historically have shorter durations, the average timeline still ranges between 35-40 days. Pay close attention to how your business has performed in this area within the last 12-24 months to help set realistic expectations for the next 6-12 months.
Automate The Invoicing Process
What is your current invoicing process? If it is not automated, then you are missing a major opportunity for boosting efficiency. How so? You already spend a considerable amount of time, effort, money and resources to market and promote your services in addition to providing satisfactory customer service and deliverables. To spend an excessive amount of time on the backend manually creating invoices from scratch will just place your business in a deeper hole.
Consider using automated software and cloud solutions for invoices that will help you to automate this process. Not only will this save your company a considerable amount of time and resources, but it will help you to get each invoice into your customer’s hands as quickly as possible.
Follow-Up With Customers In A Timely Fashion
In addition to focusing on the timeliness of initial invoices, you should apply the same principle to your follow-up protocol as well. This does not necessarily mean you should schedule an extensive list of future calls, letter mailings and email deliveries. On the contrary, you should focus on the timeliness of the follow-up methods that work best for each customer.
Modify your customer accounts to highlight the communication method with the highest response rate. For instance, Customer A may hate to answer their phone but may always respond to text messages or emails. You can use your customer preferences in this area to create an effective follow-up strategy for each account.
Offer Customer Incentives For Expedited Payments
Your company payroll is not impacted at all if you indirectly get your customers to work for your accounts receivable team. How so? You can offer an incentive for making speedy payments. For instance, you could offer a discount on the invoiced amount and/or future invoices by requiring your customers to pay within a specific timeline (such as 10-15 days after invoice date). The customer may assume they have the upper hand and will get the most benefit.
Contrary to popular belief, however, your bottom line will receive the most benefit. For example, offering a 20% discount on paying a $1,000 invoice in 10 days means that you will receive $800 in less than 2 weeks instead of possibly waiting 4-5 months for $1,000. When considering discounts and incentives, you should always focus on the long-term benefit over the short-term cost reduction.
Identify And Modify Slow-Paying Accounts
Another effective way to enhance your accounts receivable operations is to identify slow-paying customer accounts and modify them accordingly. Pay close attention to the customers who regularly pay invoices late, delay payments extensively or require repeated calls/correspondence from your staff. Consider adding initial deposits and/or COD (cash on delivery) requirements for those accounts. Doing so may persuade the customers to take the necessary steps to get their accounts back in good standing. Even if that is not a probable result, it will at least help you to keep your accounts receivable train moving on track without any unnecessary delays.
Keep An Eye On Progress & Act Accordingly
Complacency is a silent killer within any business operation – especially when it comes to accounting. You should always analyze the efficiency and overall performance of your accounts payable and receivable procedures. Avoid allowing your biased viewpoint to get in the way; view it as if you were a third-party advisor, investor or even a customer. This altered perspective will help you to clearly identify the areas of improvement that may hinder your company from achieving its full potential.
