Ever wish you could just snap your fingers and start getting your late paying customers paying on time? Dream of your delinquent accounts miraculously mailing you in a check? Sadly there is no (yet) discovered magic that can help make sure your invoices turn into cash, but diligent accounts receivable management can surely do the trick. Believe it or not, accounts receivable management is not as complicated as it seems. It's about being specific, consistent and staying on top of those accounts. The more systematic you make it for yourself, the more simple it will be. Use our "Lucky 13" cheat sheet and follow these simple steps to make sure your accounts receivable management is set up like a pro.
Accounts Receivable Management: 13 Tips and Tricks to Get You Paid
1) Get Organized - If you are going to excel at accounts receivable management, you have to start from the very beginning. Be diligent in every step of the process but, most importantly, in who you decide to extend credit to. Net terms aren't for everyone. Start by setting up a professional credit application that gives you a chance to get as much info as you can on these customers. Use this info to vet them so you are making proper credit decisions. (You can also enroll in this free email training program that will teach you how to make expert credit decisions). Once you've decided to move forward on credit with a customer, be sure you have a contract that clearly states the terms you are operating on and that that customer knows they must pay you. Also, be sure you are using a top-notch invoicing software so you have an excellent way to keep an eye over your accounts and get your invoices to customers as seamlessly as possible.
2) Use the Credit Limit - Remember, the credit limit is something you and you alone decide, so take advantage of having this kind of power. Start extending more moderate terms with customers and let them know they can work their way up to more flexible terms. Not only is this an incentive but it allows you to really get to know customers' payment habits before you give them too much room to breathe. It's without a doubt the best way in accounts receivable management to ensure a customer will practice proper payment behavior.
3) Creatively Communicate - With the doors that technology has opened, the customer relationship management game has completely transformed. CRM is actually one of the most, if not the most important part of accounts receivable management. If you have a strong and healthy relationship with a client, they are not going to want to jeporadize that. Be creative in how you connect with clients. If you are on social media (which you should be), be sure to follow them on every medium, constantly commenting on their updates and showing them your listening. Send emails just checking in, being sure to nurture the relationship beyond just business. Always take note of your customers' special occasions: birthdays, anniversaries, store openings, launches, etc. It's about showing them you care and showing them your paying attention. It creates an emotional connection between you and your customer, making it harder for them to pull a fast one of you. Also, when a customer sees just how attentive you are, they will assume you are surely as diligent about your payments. You don't mess around when you know someone runs a tight ship.
4) Start Early - Don't just sit around waiting for the customer not to pay you. Create a system that allows you to remind customers when they have a payment around the corner. If it is a week before payment is due, and you still haven't received the check, shoot the customer a friendly reminder email simply reiterating the due date and how you accept payment. Don't make it harsh in anyway; they haven't paid late yet!
5) Don't Wait - Accounts receivable management 101: when you find out a payment is late, don't wait. The longer you wait to collect, the harder it is. Go straight after late payments as soon as the due date has passed!
6) Remind, Remind, Remind - This seems silly, but your customers might not know their payment is late if you don't tell them. Believe it or not, some of them haven't paid you because they just simply forgot. It's your job to make sure this isn't the case. As soon as the payment is past due, get a reminder letter in the mail. However, don't just use a generic letter. Be crafty in your accounts receivable management and sculpt the letter's language to be appropriate for the situation. If somebody is a chronic late payer, you might want to up the severity, where if it's someone's first time offense, keep it friendly. Check out these sample collection letters for great references.
7) Stay Professional - The worst thing you can do when it comes to a late payment is to get emotional. Now don't get me wrong, you should be emotional. In fact, you should be very, very upset that someone didn't respect you and your work enough to make the effort to get your money in on time. However, don't let these emotions cloud your decisions. Stellar accounts receivable management is about learning how to stay professional. If you are a small business owner, chances are these are your friends, or even people you see out to dinner, on the golf course, at church, etc. You don't want to do anything to ruin the relationship. As they say, keep calm and carry on!
8) Collection Call - After you have sent the letter and have received nothing, it's time to get on the phone with the customer. This is a crucial moment in your accounts receivable management. You must, again, not let your emotions get the best of you and you cannot let the customer run the conversation. You need to prepare for the call and be ready to accomplish your goal. To do this, follow this excellent guide that will help you prepare for your collection call.
9) Prepare for Excuses - The hardest part of the collection call is having to listen to the customer's different excuses for not paying. No matter what, you have to be prepared to battle these. Although (in some cases) it is easy to sympathize, accounts receivable management is about action and you must require some from the customer. Get acquainted with the most common late payment excuses and learn how to respond to each one. Practice makes perfect and helps you get paid.
10) Installment Plans - When you do come across a customer who seems to be in a financial hard spot and you really would like to help them out, installment plans are key. Having a customer pay you back in a smaller amounts over time is MUCH better than a customer not paying you back at all. It gets cash in your pocket immediately and says a lot to the customer, as you are doing them a huge favor. Work with the customer to create a payment plan that meets both of your financial needs. Ideally, it would be great to always receive all of your money up front, but in those moment you can't, be creative in how you can help the customer pay you.
11) Finance Charges and Rewards - Incentives go a long way, no matter what you are doing. Consider this when it comes to accounts receivable management. Are you adding finance charges for late payments? Are you giving customers a discount if they pay early? Whether it is to have consequences for paying late, or rewards for paying early, help give customers a little push in getting that cash to you on time (or early). It's worth it, especially to see what kind of affect it has on your payments. If you are considering adding a finance charge, check your state's usury laws to make sure you are not overcharging.
12) Outside Resources - Businesses that excel at accounts receivable management do so because they know when to turn for help. There are many things you can do to help with late payments or delinquent accounts. Consider reporting late payments to the credit bureaus, which will affect those customers' credit scores. Knowing you are reporting will certainly motivate them to pay next time. If you have particularly large or repeatedly delinquent accounts, consider calling a debt collection lawyer to help take legal action. And if you need cash fast, look into receivables factoring, which will help you get your hands on cash while a factor pursues your late payment.
13) The Experts - When you are having huge issues with late payments or delinquent accounts, it is ok to turn to the experts (this is not saying you AREN'T an accounts receivable management pro). A lot of people are hesistant and cautious in using collection agencies and rightfully so. But if you are wise and do your research, you can find a company that will get you paid and treat both you and your customers right. It's all about asking the right questions. If you find yourself in the position of needing to send accounts to collections, do your due diligence and you'll find a partner who will make their first priority to get you paid, while letting you focus on the other things that are important for your business.