When I ask business owners about their AR, they normally respond with either, “We invoice our customers.” or “We collect payments on a regular basis.”
I’m always glad to hear those responses. However, when I ask, “What is your accounts receivable turnover?” or “How many days does it take for you to collect?”, the business owner usually tells me it takes a month or two. Some may not know if it is within 30, 60 or 90 days. Once I begin reviewing their books and processes, I often find that their AR and cash management need a closer look.
Ever wonder how is it possible to be generating great sales per your income statement and have a monthly shortage at the same time? You may not be sure if your business is even achieving its break-even point (BEP). Are you meeting the minimum to cover overhead? What about sales expectancy? Are you generating a profit? One of the main reasons you have decided to be in business is to be successful in the service or products you provide. The goal should be to generate a profit so that your dreams and visions for your business come to fruition.
What if you were able to ascertain where you are currently and map out the steps you can take to improve in this area? What if you had a clear picture to help direct your business decisions? AR and cash management are areas that will need your focus and attention. A lot of us start off and have current clients that meet our expected profit margin. Identifying your top customers, organizing invoices, and determining how to best collect on your sales will be essential to your growth.
With that in mind, here are 8 accounts receivable and cash management tips to help you get paid:
- Organization is Key. Make sure that you have an invoicing system that is user-friendly to both you and the customer. It should be simple to access and issue payment upon receipt.
- Establish Great Communication with your Clients. During the initial meeting, share proposed contracts with details about the services being provided and your payment terms. Also, establish a business relationship with an open line of communication. Contact them on a monthly basis. Do recognize birthdays, anniversaries and add any personal touches you deem appropriate.
- Start Early. Establish a system that will generate reminders to your clients about upcoming payments. Having an invoicing system which will send out recurring monthly billing provides you with an organized way to record all sales and reminders to your clients.
- Remind, Don’t Wait. Once you find that a client is late with their payment, send out a reminder or give them a courtesy call. Make sure to be creative with your reminders and responses to nonpayment. Your client may have honestly forgotten. But, keep in mind: the longer you wait, the harder it will be to collect.
- Always Be Professional. As you are reviewing your bank account, sales, and expected close during the month, you may discover that some of your trusted clients haven’t yet issued payment. This can, at times become personal and emotions may run high. Don’t allow this to drive your next step and decisions. Take a deep breath. These clients maybe be friends, network and business associates, or even members of your church. It’s important to keep it professional.
- Collections Call. Conversations concerning past due accounts can be tense. Establish protocol as to how the calls will handled and who will be responsible for making them. Be sure to review your “contract payment terms” beforehand and determine that you have exhausted all other efforts in collecting payment.
- Installment Plans. Don’t underestimate the power of installment payments. Try offering them to your clients that may be facing financial hardship. If you would like to be of help and your goal is to make sure your accounts are paid in full, an option like this is better than a customer not paying you at all.
- Consider Outsourcing. Making a decision to outsource your accounts receivable and billing process might be helpful and allow you to focus more on managing your business. Outsourcing helps to free up your time and resources. Taking a look at your weekly and monthly data will let you know immediately the state of your AR Sales and cash flow in a more timely manner. At Quality Financial Services, we offer this service to help small businesses operate more efficiently.
Keep in mind, generating sales and revenue is wonderful, but actually collecting is key to your company’s survival! After all, “Your business is only as profitable as you are.”
Nicole R. Cooper, MBA is the owner of Quality Financial Services, LLC, a company specializing in AR/cash management and collections.