Accounts receivable invoices are sometimes a necessary part of doing business in India. When outstanding payments come in too slowly, it can seriously damage your cash flow. Are there ways to get paid faster? Yes. You can greatly reduce past due payment worries with these timely account receivable management tips.
1. Create a Written Payment Policy
Are you giving payees an excuse to put your invoice at the bottom of the bill pile? Perhaps not intentionally. But without an established payment policy, your invoices lack authority. A payment policy firmly lays out the rules by which payees must send you money. It sets the terms in written language that is clearly understood. With a policy in place, customers and vendors know when payments are due. They also know what happens, should they miss the due date.
The first thing to decide when creating your payment policy is how much time to allow for payment, typically called net terms. Common net terms are 15, 30, 60 or 90 days. Net terms can also be 10 or even 45 days, depending on the industry. Net terms establish the amount of time you wish to wait for payment. While deciding on net terms, consider your cash flow needs. Next, decide what type of late penalty to impose for missing due dates. For instance, you may want to add a 1% to 3% late fee penalty as a deterrent.
The goal now is to make this written policy easy to find. Highly visible places include sales literature, contracts and invoices. You may also want to stick it somewhere on your website for good measure.
2. Be Picky About Offering Credit
Accounts receivable payments are actually credit. Some industries are heavily based on credit. Some are not. It’s better for your business cash flow if you can avoid giving net term credit in most cases. Because this impacts your cash flow, it’s okay to be picky. A scenario where only your best customers and vendors get offered credit is ideal. Payment history can be key when making this important decision. Those who have a history of timely payments often make excellent credit candidates.
What do you do if you must extend credit terms? You can still be picky. The most trustworthy can get more favorable terms than those with shaky histories. Here’s an example of how this works. Payee A gets 90 day net terms because they always pay on time. Alternatively, Payee B gets 10 day net terms because of their spotty payment record.
3. Be Proactive
When possible, communicate directly with the person in charge of paying bills. It may take a phone call or two to reach this person, but it’s well worth the time. A friendly chat to clarify payment expectations can head off potential problems. Another proactive step is to include detailed information on all invoices. Let payees see exactly what they owe for all products and services. Listing everything avoids confusion.
4. Offer Payment Incentives
Sweetening payment terms may help you get paid faster. One method is to offer an early payment discount incentive. How does a 2% discount off the balance due amount sound? To get this discount, payees must submit payment within 10 days. Imagine how many would pay faster just to save money. You can also use this strategy with upfront lump-sum payments vs. monthly installments.
It’s possible to successfully eliminate an ongoing cash flow crunch by using these sound accounts receivable management strategies.