As we approach the end of the year, tax planning becomes increasingly important. Many times, you and your business can identify tax advantageous ways to spend or distribute any excess cash reserves. As such, you begin to focus on turning receivables into cash (much easier said than done). Here are five helpful tips on how you can speed up your collections process:
1. Streamline the billing process. You can't collect what you don't bill. Invoice customers promptly - as soon as the product ships if possible. Or, if you provide services, track billable hours daily and bill monthly (or as often as permitted under your customers' contracts). Implementing an electronic payment system, or upgrading your existing one, may accelerate in invoicing and enable faster receipt of receivables. When we started our Firm, we had to bill our clients promptly in order to succeed. This practice enabled us to develop good billing policies to this day.
2. Reward early birds and penalize procrastinators. Enticing customers to pay before the due date may require early-bird discounts, such as a small percentage off bills or value-added perks for those who pay on time or improve their payment histories. Conversely, you might consider assessing fees on past-due payments. However, many companies decide to waive late charges as an act of goodwill when customers immediately resolve outstanding balances.
3. Take a multifaceted approach. A variety of strategies, rather than a single phone call demanding payment, can yield better results. Courtesy calls may allow you to more quickly discover discrepancies (such as wrong addresses) and settle disputes, payment plans can help distressed customers catch up on overdue accounts, and promissory notes can help prevent future billing disagreements.
4. Minimize risky business. Before conducting business with anyone, review a prospective customer's payment history, references, and credit score to assess ability to pay. Poor credit shouldn't necessarily stop you from providing products or services to a customer, but be prepared to alter your typical payment terms when dealing with high risk buyers. For some cases, you may have to request advance deposits.
5, Look outside for help. If late payments become a serious concern, third parties can offer assistance. Turning over particularly bad debts to a reputable collection agency allows you to distance yourself from the matter and focus on business. We've helped many of our clients by reviewing financial statements and collection procedures to identify specific, achievable goals in getting paid faster - let us do the same for you!