Accounts receivables (AR) are the lifeblood of your company. They are the positive end of the cash flow cycle and are necessary for paying bills, salaries, and your own creditors. It also tends to be one of the largest assets a company owns.
Managing this critical resource effectively can help smooth out your finances and keep your company healthy and growing. However, there are a number of issues that can prevent your accounting department from collecting outstanding receivables properly.
The overarching problem that all AR teams face is accounts that don’t pay on time or don’t pay at all. But this is frequently a symptom of more specific, underlying problems in the management of your accounts receivables. Fixing these common problems will often lead to more consistent payments.
When attempting to fix any of the problems below, it’s important to remember that any solution must be applied consistently in order to be effective. Selectively applying policies or only following best practices when it’s convenient is a surefire way to fail.
Collecting On Invoices Takes Too Much Time
If your AR management team finds they spend too much time chasing down customers and helping them make payments, you may have a couple of issues that can be improved.
For one, it’s possible that you aren’t offering enough ways for your customers to pay you. If the limited payment methods you accept don’t align with the ways your customers want to pay, you’re certain to encounter problems.
So make sure you offer the full complement of payment methods available today, including credit cards, checks, direct bank account debits, digital services like PayPal, and mobile payment apps like Venmo.
You also want to collect payments digitally, and automatically, so that your AR teams don’t need to be involved. Embedding payment options directly inside of a digital invoice is the best way to handle this. Additionally, this makes things simple for your customers, which increases the speed with which they’ll pay.
Customers Complain They Aren’t Given Enough Time
Many companies pay their invoices at specific times each month. If they pay twice a month, they might choose the 15th and the end of the month. Payments made once a month could fall at the beginning, middle or end, and this date can be different from customer to customer.
The problem faced here is that your invoice releases may not align well with their schedule. Your terms might be Net 30, but if you send an invoice on the 20th and the customer pays at the end of the month, they may feel they only have ten days to pay you. If they opt to pay you at the end of the next month, they’ll wind up paying late. You may even decide to impose a late fees.
While it’s unreasonable for customers to think you can sync your invoices to their preferred payment window, you can help them by sending out invoices as soon as possible. Accounting software will generally help you automate the creation and sending of invoices, but you can also create an internal process that generates the invoice immediately upon delivery of the product or service.
Sending invoices digitally helps this situation by making invoices quicker and easier to submit and it saves the time they would sit in the mail.
Getting Payments and Invoices to Match is Time Consuming
If you’re still manually matching payments to invoices, you’re wasting a lot of effort. Most advanced accounting packages can handle this labor-intensive task for you
Particularly when you invoice digitally and include direct access to a payment portal, you can control the flow of information between the payment source and your accounting software. This can help assure that each payment that’s made is tied to a specific invoice number for easy matching.
If you aren’t ready to automate your process digitally, there are still steps you can take. Make certain that every customer has a unique customer ID and tie that ID into your invoicing system, creating an invoice number for each invoice you send. Your invoice number might include the year, the client ID, and then a string of numbers that increments by one with each invoice. For example, the first invoice for your customer ABC Tech might read, 19ABC0001.
Make sure that clients include that invoice number with any payments they make. You’ll be able to immediately identify the account the payment belongs to and track down the matching invoice.
Invoices Missing Information
Some large companies require specific pieces on information on the invoices they receive, and when it’s missing or misformatted, payment delays can result.
For small businesses, it can be extremely challenging to generate custom invoices this way. Not only is it difficult to remember the specifics for each invoice version, but it’s also hard to keep multiple versions of your invoices on hand.
Invoicing software is the best way to solve this problem. You can create invoice templates that are specific to each customer that requires custom invoices. This way you do the work once and then rely on the software to keep everything straight for you.
Invoices Aren’t Getting to the Right People
Employees come and go. Businesses move locations. Departments shift between offices. Over time, the people, places and email addresses you’re sending your invoices to may change, and invoices that once got paid quickly might stop getting paid at all.
Using a CRM package to keep track of all of your customers can be a good way to make certain your contact information is kept up to date. These have tools built-in to help you keep up with the right decision-makers and billing contacts for each company you do business with.
No matter how good your invoicing practices are, some customers will always pay late. It’s likely that they’re exercising cash flow management on their end. But they might also be serious defaulters. The best way to deal with these customers is to build reminder automation into your collections process.
Either schedule reminder letters to be sent for each invoice you send, or better, create rules in your accounting software to send these letters at regular intervals for you. You can sculpt the language of the letters ahead of time. Just make certain that the reminders start out friendly and get progressively more demanding with each iteration.
Phone calls are certainly warranted if an invoice becomes significantly overdue, but the more that you can leave your collections to your software, the more time you’ll have to solve other AR problems you’re facing.
If you need a Collection Agency to help recovering money from your overdue accounts: Contact us