Tips for improving accounts receivable
Create a formal, written policy for collections, and enforce the policy.
For example, you may email every customer when an invoice is later than 30 days, and call each client when an invoice is over 60 days old. If you enforce a policy, people will either start to pay you on time, or stop doing business with you (which may be fine, if they always pay late). Some firms charge late fees after a specific due date, and include the terms of the fee on each invoice.
You may have some uncomfortable conversations, but it’s better to have them sooner than later. If you’re diligent in the collection process, you can avoid hiring a collection agency or an attorney to pursue collections on your behalf.
Offer your clients a discount (1% to 2%), if they pay within 10 days. You’ll lose some revenue with these payment terms, but you’ll collect some cash faster.
Automate the invoicing process. Using automation will reduce the risk of errors, and recurring invoices can be processed in far less time. Emailing invoices, and providing an online payment option, encourages customers to pay immediately, which speeds up the cash collections. Best of all, invoice automation makes the buying process easier, and improves the customer’s experience with your company.
Accounts receivable balances that will not be collected in cash should be reclassified to bad debt expense.