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The Alternative Board Blog

Improving Your Accounts Receivables Process

Jan. 8, 2021 | Posted by The Alternative Board

Most businesses offer a solution to problems or otherwise fulfill a need experienced by their target audience. They can only go on doing this if—in exchange for delivering a valued good or service—they get paid for doing so. As part of overall business operations, therefore, the area of accounts receivables (A/R) is crucially important to a company’s ongoing success.

Unfortunately, not all clients pay their bills on time. Some go into arrears for weeks, months, or even years. This leaves the business who delivered the original goods or services essentially “out of luck” until (or if) the client decides to pay.

But rather than wait passively to see if this will happen, here are proactive tips to improve your company’s A/R status, and help make payment possible:

Get the process in order.

One common impediment companies face is the lack of a standard procedure by which to invoice and facilitate payment by customers. As we have noted elsewhere, it’s imperative to do a “comprehensive evaluation of past due clients and take action to make the appropriate payments” in as timely a manner as possible.

Another key step—revamp your A/R system so clients are invoiced immediately upon receipt of a product or service, rather than invoicing on a pre-specified day of the month.

Enlist the services of your skilled employees.

It’s vital for employees charged with collecting on invoices to go about the task in the right way. While, of course, you wish to collect outstanding payments, “you also want to maintain customer goodwill,” notes SF Magazine. Your team must understand that “companies that owe you money may be going through bad times right now yet could be great future customers.” Undertaking A/R collections should always be done respectfully.

Make a payment plan available to clients.

One issue around A/R is that some businesses simply are unable to pay the full amount of what’s owed at a given time. For this reason, consider drawing up a payment plan that makes sense for all involved. One option is to spread payments over an agreed-upon period of time (say, 12-14 months) which may make it easier for a struggling customer to come through with needed payments. It can also provide a favorable “bump” in your cash-flow situation.

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Redesign the company invoice.

Sometimes, the problem relates to a simple misreading of your company invoice. If details are vague or language is unclear, it’s easy for the customer to delay payment. On the other hand, when you ensure that the invoice “contains all the essential information clients need and is formatted in a way that is easy to process,” you’ll likely see better results, according to PNC Financial Services Group. The objective is put all relevant information (and nothing more) in your invoice, “so your customer’s accounts payable department doesn’t have to hunt down details that could delay your payment.”

Pay attention to the tone of your communications.

Ill-tempered or otherwise antagonistic messaging around payment due rarely achieves the desired result. Your initial contact with a delinquent client should take the form of a “friendly reminder” call, with a willingness to listen to what that client has to say. After that, as The Balance Small Business notes, you can “gradually increase the assertiveness of your follow up communication over time.” If this initial effort doesn’t work, “the tone may be more direct and assertive (but never offensive or unprofessional)”.

These are challenging times for all businesses, so being respectful in tone and offering payment alternatives may be the best approach to collecting on accounts receivables.

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Written by The Alternative Board

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