4 Tips to Improve Accounts Receivable Management | Behalf
Your accounts receivable department is the anchor that keeps your company grounded in reality. Regardless of how many sales your company makes, it doesn’t mean anything if you don’t get paid. Your accounts receivable department is designed to ensure customers pay your company in a timely, orderly manner, but that is not always the case. Though you try your hardest to attract loyal, respectful customers that honor your terms and always pay on time, some bad apples undoubtedly slip through the cracks. While some customers are simply forgetful, others take advantage of trade credit and buy what they cannot really afford. When collections go awry, accounts receivable must strategically follow-up on late payments and outstanding receivables. If they are inefficient, accounts receivable can lengthen your company’s working capital cycle, unnecessarily tying up earnings it could use to cover operational expenses. This article offers 4 tips on how your accounts receivable department can proactively manage customer collections.
1) Tailor Credit Limit to Customer
Your accounts receivable department sets the credit limit, which means they are in control. Accounts receivable doesn’t have to offer the same cookie cutter trade credit to all of its customers. They should tailor trade credits to match the status of the customer. New customers do not deserve the same terms you might extend mature customers that have displayed good spending habits. Reward loyal, repeat customers by giving them more lenient terms. Start new customers off with a smaller trade credit or require immediate payment, so you can observe their behavior first.
2) Get Creative
Accounts receivable has to think outside the box to get certain customers to pay. They can introduce installment plans and incentives to encourage payment. Installment plans are not just a sign of your company’s generosity; they increase your company’s chance of getting some form of payment instead of none. Installment plans give customers more flexibility when they would like to pay but are unable to do the full amount all at once. Incentives, like discounts, penalties or charging interest, can also increase your chance of getting paid. Offer discounts to customers that pay early and maintain a strict policy of charging interest on late payments to encourage the behavior your want across your customer portfolio.
3) Friendly Reminders
Accounts receivable HAS to keep reminding customers to pay until they do. However, they don’t have to aggressively stalk your customers. Accounts receivable can send friendly email or text message alerts to remind customers of upcoming deadlines and your company’s accepted payment methods. Give customers the benefit of the doubt. They lead busy lives and have lots of other companies vying for their attention, as well. Even late paying customers are not always intentionally avoiding payment – it is human nature to forget. Set your friendly alerts so they become more frequent as the deadline grows near. Once the deadline hits and you still have not received payment, contact the customer immediately and send a physical letter to their address. Using different media to get your message across increases your chance of reaching the customer.
4) Collection Calls
As old fashioned as it sounds, accounts receivable must call unresponsive customers when their payments are late. It’s time to face the music: your friendly email reminders didn’t do the trick. Phone calls are much more personal and require customers to think on their feet if they try to make excuses. Customers feel much more accountable for their late payments when they interact with another human, not just a computer screen. Collection calls are not easy for either party to make but they are more effective than an email alert. Collection calls are strategic. They are professional but also convey a sense of urgency. The caller must stay in control of the conversation and dodge the customer’s excuses, remembering that they are in the wrong.
Your company will inevitably deal with a hiccup or two in its accounts receivable department. The goal is to keep those hiccups to a minimum and ensure you are minimizing write-offs due to uncollected receivables. Implementing the tips from this article will help strengthen your company’s accounts receivable strategies, but have you explored other ways to bypass collections all together? Consider offering your customers a purchasing credit line that gives them the extended payment terms they need while ensuring you get paid fast at a low processing rate. When you accept payment on your customers’ Behalf, they can pre-qualify for up to $50k in funds and create their own payment plan with up to six months of extra time. They can use the funds to make larger, more frequent business purchases and regardless of the terms they choose, you always get paid in full within 1 business day. No paperwork. No recourse. No uncomfortable collections calls.