4 Easy Steps to Collecting your Accounts Receivables
All small business owners and entrepreneurs know cash is king. You need cash to run your business. Whether it’s ordering inventory, purchasing supplies, paying payroll, covering your utilities, investing back in your business, and paying yourself. The typical small business has at least 40% of their assets tied up in Accounts Receivable. That’s a lot of financing for their customers!
Here are 4 easy steps to collect your accounts receivable quickly.
1 - Be In Touch With Your Customers
Don’t be afraid to pick up the phone and contact your customers. A simple and friendly call to remind them about their outstanding invoices can go a long way. Another great way to remind customers of their past due balances is to send monthly statements. I recommend sending monthly past due statements at the beginning of every month.
Add it as a task to your calendar and stick to it. Then the customers who are still outstanding by the middle of the month, give them a call. It’s a lot easier to collect newer receivables than the older ones. So being in touch with your customers sooner than later will almost always pay off.
2 - Take a Look at Your Accounts Receivable Policy
Not all of your customers are the same. Yes, if you are working with large corporations, it typically takes the standard 30-45 days for them to issue payment. If you work with smaller companies, try adjusting the payment terms. Is it possible to have your invoices due within 10 days, 20 days, upon receipt, etc?
What about charging a retainer payment – your customer pays half up front and the other half when you deliver the product or service.
Another great option is offering prepayment discounts. Many times you will see invoices with 5% discount if paid before 30 days. There are a lot of small businesses out there that love reaping the benefits of paying early to get discounts. Why not entice them to pay your bill early too!
Contact your bank and get set up to accept automatic draft payments or credit card payments. You can sign your customers up to have their monthly fees be directly debited from their bank account on the 1st of each month or you can automatically charge their credit card the 1st of each month (or whatever day you choose).
Don’t be afraid to charge late fees. Keep in mind some states have credit laws, so you need to make sure your financing fees are in line with the state and federal laws. Typically you need to have the late fees spelled out in your contract and listed on your invoices. That way there are no surprises to your delinquent customers.
3 - Not Everyone Has To Be Your Customer
Don’t be afraid to turn away customers that you get a bad gut feeling about. Maybe you know the potential customer doesn’t have the funds to pay or maybe you’ve done this type of work in the past and have been stiffed more times than you would like to admit. If it doesn’t feel right, it probably is not.
Why waste your time and resources doing work when you do not think you will get paid. Instead, kindly turn down the work. If you really want to do the work, make sure you collect the payment up front.
4 - Double Check Your Invoices
Don’t forget to double check the invoices you send to your customers. Set up a procedure to have them looked over before sending or a few weeks after they have been sent, if payment has not been received. I know I’m guilty of this too, taking longer to pay on incorrect invoices. We are all busy, but don’t make your customer have to make time to correct your billing mistakes. This will almost always result in a delay in you getting paid.
These 4 easy steps should make collecting your past due invoices easier and quicker. Bottom line, being active and managing your accounts receivable will help turn those late payments into cash in your bank account. Eventually word will get out that your business does not mess around with accounts receivable and your customers will start a habit of paying you on time, if not early!