How to Streamline Your Accounts Receivable
Running a small business is hard work. Getting paid to run a small business is even harder. Unfortunately, many customers have trouble following a payment schedule, and the result is often a shortage in your cash flow. It can be really tough for entrepreneurs to weather these dry spells, and that’s why it’s so important that you stay on top of your accounts receivable. If you find yourself constantly waiting on invoices, you need to focus on how you can improve your collections process.
If late payments are becoming routine, it might be something on your end that’s enabling such behavior. Clients almost always know that they need to pay for services, but that doesn’t mean they’re going to do it without being guided. If your records don’t make very clear who owes what and when that payment should be received, you might drop the ball on reaching out to collect. Be very detailed in how you list and track accounts receivable so that you aren’t guessing as to when capital might come in. This will help remind you when it’s time to contact a customer about payment, while also keeping you from reaching out too frequently.
You don’t need to offer prizes or throw parties for clients who settle balances on time, but you might want to offer a slight discount for early payment. In the long run, your company will benefit from having steady cash flow, even if it costs you a few dollars to get it. This is also a good business practice and can lead to more repeat customers.
If you decide to offer any sort price reduction, think carefully about how much you can afford to offer. The discount should not be so much that your company ends up underfunded. Remember that the incentive can be very modest since all anyone has to do to earn it is pay on time.
If you have clients that are notoriously late on their invoices, be prepared to contact them early on. Collecting money can be difficult and uncomfortable, but it only gets worse the longer you wait. If you’re upfront about your payment policy, it will be much easier to talk to customers about their balances without sounding desperate.
The goal of your business isn’t just to generate accounts receivable, but to actually receive the dues on those accounts. Make sure you don’t take payment for granted and think about the steps you can take to help your customers pay promptly.