Healthy cash flow is your company’s backbone. While getting paid in full, upfront, or early is ideal, it’s not always the case. Many factors can prevent a customer from making payments, including economic fluctuations or issues within their own company. Recovering outstanding payments from customers can be disruptive and impact your company’s short- and long-term goals.
It can also be exhausting to have to constantly call and remind clients of their late payments. If you don’t have a robust collection strategy in place, it’s time to reconsider how to improve collections for your business. We’ll show you some simple methods to speed up your collections processes and receive payments faster.
14 Collections Best Practices to Start Using
Cash flow is essential to every company. If your clients don’t pay on time, it can affect the amount of cash coming into your business. Protect your cash flow with these tips for how to speed up collections.
1. Streamline the Billing Process
You cannot collect what you do not bill. If you can bill faster, you can collect faster! Success starts with analyzing your current billing process and identifying ways to speed it up or reduce time-consuming elements.
For instance, if your company struggles to invoice clients quickly, you could face a delay in collecting your payments. If you offer products to clients, try to send invoices as soon as the item ships. If your company provides services to clients, track the billable hours daily and bill as often as permitted under the client’s contract.
Take a look at your employees as well. Do they keep invoices on their desks for days at a time before sending them out? Do they have to manually input data? These small factors act as bottlenecks in your billing system and prevent you from collecting.
Upgrading your existing electronic payment system or implementing a new one can help you set up online payment options and send invoices in real time. An electronic system enables faster receipt of receivables. While assessing your resources, consider other technologies like email, voicemail, or electronic payment. Compare what you currently use and think about what could speed up payments.
If you don’t already, you can also ask clients to provide up-front deposits.
2. Eliminate Risky Business
Before engaging in any business transactions, it’s critical to review your client’s financial history, such as their payment history, credit score, and ability to make payments on time. Whether you’re working with a new or existing customer, consider it a best practice to assess each business’s financial standing to avoid conducting business with a company that does not have the means to pay you back.
While poor credit alone doesn’t always mean you shouldn’t provide products or services to a client, it can definitely be a red flag. Be prepared to adjust your payment terms and protect your business against bad debts when it comes to high-risk buyers. For instance, you may set a limit on outstanding balances for certain companies or require them to provide cash upon delivery of services.
3. Review Your Company’s Policies
If your company is experiencing difficulty with debt collection, review your overall procedures and policies regarding billing dates and payments to determine why some of them are delayed. Consider what processes you can tighten up to speed up collections. Ask the following questions:
- Are your product shipments or services accurate?
- Did you maintain delivery and quality promises?
- Are your salespeople or employees making promises your company cannot keep?
- Are you following up with contacts on a consistent, scheduled basis?
- Are you sending invoices timely and ensuring they’re accurate?
- Do all invoices have the correct and necessary information, such as address and phone number?
Though these may seem like obvious things to consider, it doesn’t hurt to review your collections policy and reiterate it to your employees. Discuss your payment terms, past due interest charges, and billing cycle details regularly with both your staff and clients to avoid miscommunication. You may even decide to invoice earlier in the month to ensure you get paid or change your billing cycle, for example, from twice a month to once a week.
4. Reward Those Who Pay Early
Enticing businesses to pay on time or early may require you to offer special discounts or rewards, such as taking a percentage off bills for on-time payments or improving their payment histories. One of the most common practices is a 2/10 net 30, in which you offer a 2% discount for invoices paid within 10 days and the full amount is due within 30 days.
You may even waive late charges to customers who immediately resolve their outstanding balances and improve their payment history. With these value-added perks, customers may reconsider turning in past-due payments down the line.
5. Send Multichannel Collection Reminders
Making courtesy calls to customers and clients to understand why they aren’t paying their bills can help you resolve issues efficiently. Sometimes, there’s an error in the customer’s information, such as their email address, which can prevent them from receiving their invoice. Other times, there may be a dispute over the invoice amount. These types of discrepancies are normal to experience, but you can handle them more effectively by taking a multifaceted approach instead of waiting until the next billing cycle.
Rather than making a single phone call, consider using a variety of strategies, such as reminder emails, physical letters, and legal notices, when your customers have reached a certain overdue penalty. Using multichannel reminders can help you settle disputes, document communication, and prevent customers from disputing charges in the future.
6. Make It Easier for Clients to Pay
Some B2B companies still use paper checks, but many have switched to digital and online payments. However, constantly waiting on paper checks in the mail can disrupt your cash flow. Offering various payment options, such as credit cards, bank accounts, or other contactless solutions, can make it easier for clients who are experiencing financial difficulties to complete their payments.
For instance, you can help customers pay off their debt by allowing them to make multiple, smaller payments over time rather than a large lump sum payment. Doing so helps you maintain a more positive business relationship with your clients while ensuring you get the money you’re owed.
7. Enforce Penalties for Late Payments
Though it’s natural to want to be empathetic and understanding of financial situations, particularly during economic cycles, sometimes it’s necessary to enforce penalties. If you have several clients that are past due on payments, that means it affects your company and employees just as much. While it’s important to show consideration for your customer’s financial difficulties to help maintain business relationships, transparency is key. At some point, you may have to end the grace period and remind your client of the penalty for late payments.
Whether you enforce a flat fee or a percentage of the invoice, reminding them of their responsibility to pay can avoid greater penalties, such as suspension of services. It’s true that some aspects of collections can be more difficult than they are beneficial, but enforcing these penalties and actively charging late fees reduces these occurrences in the future and shows that your company is understanding yet firm on your policies.
8. Follow up Faster
When you have past-due accounts, your chances for collection drop considerably. As soon as you know of a past-due receivable, act on it quickly for a better chance of collecting the payment partially or in full. Contact the client on the first day the payment is late to remind them to pay.
9. Build Customer Relationships
Stronger client relationships can increase the chances of receiving payment. Start open conversations with clients about late payments. These conversations allow you to understand the reasons for delays. You can use this information to avoid future late payments and influence relationships with other clients.
Frequent communication also allows customers to share any issues with paying invoices on time. Shape how you approach future client interactions with the details you learn. With your largest customers, you can develop personal relationships with accounts payable managers. If multiple people handle your account, ask for the same person during every interaction to strengthen the relationship.
Establish a strong billing communications protocol to enhance your collections processes.
10. Retrain Staff
It’s difficult to ask customers to pay you, and your receivables team may struggle to handle past-due invoices. Retrain your staff on how to communicate with clients throughout your receivable process. Ensure your clients understand your company’s expectations to create a smoother process.
Reinforce the vital role of collection and encourage your teams to collaborate for better results. Loop in all client-facing teams, including sales and finance, for more consistent communication and a clearer view of the client experience.
11. Create Accounts Receivable Aging Reports
Your accounts receivable process should enable you to quickly understand the current payment status of all receivables. Create a report to track each account based on the days since it was issued. The report may divide receivables into 30 days, 31 to 60 days, 61 to 90 days, and more than 90 days. Regular updates to this list allow you to assess the current status of your efforts and address any problems before you face past-due bills.
12. Collect Details About Late-Paying Customers
When you face late-paying customers, you can refine your collection tactics based on their behaviors. Consider whether the customer consistently pays late. Some may wait to pay until you contact them. Others may face certain situations that lead them to delay payment. A better understanding of your customer lets you decide how to approach each interaction.
13. Focus on the Most Impactful Actions
As you seek to refine your receivable collections strategy, start with the actions that will have the most impact. Look for the most overdue invoices or the biggest amounts left unpaid. These clients often require the most communication and specialized collections strategies.
Once you develop strategies for your big overdue accounts, you can refine your strategies for other smaller accounts. These smaller accounts typically require less effort and make a minor impact on your overall operations, so it’s okay to set them aside at first. This strategy can help you improve debt collection for small businesses that may lack the resources and time to deal with all unpaid invoices simultaneously.
14. Partner With a Commercial Debt Collection Firm
If you feel you’ve exhausted your resources for first-party collections, one of the most effective cash collection strategies is to seek outside help. Outsourcing your accounts receivable management process can streamline debt collection and significantly lighten the burden on you and your team.
With a third-party debt collection agency, you can distance yourself from the collection process, build a collections team and focus your time and energy on other high-priority business matters. A third-party collections firm can review your financial statements and procedures and help you set specific goals for your needs.
Why Trust Altus?
Managing debt collection can be a stressful and time-consuming process. With a third-party commercial debt collections and accounts receivable firm, you can more effectively retrieve debt from customers and clients while maintaining strong business relationships. At Altus, we understand how challenging it can be to collect the payments you deserve. That’s why we work on behalf of businesses like yours to retrieve debt with a customized approach that fits your business needs.
Since 1994, we’ve been providing services to many industries, such as manufacturing, alternative lending, financial services, software and technology, and distribution and transportation. Today, we’re North America’s top commercial collections firm. Our clients partner with us to access specialized expertise from a fully licensed company with the experience, technology, and strategies to achieve the highest recovery rates.
As the largest firm in our sphere, we offer unparalleled services for commercial — and specific industrial — sectors, complete with transparency to put your mind at ease and technology integration to further optimize the debt collection process. We will implement best practices to speed up receiveable collections.
Contact Altus for Commercial Debt Collection Help
At Altus, it’s our goal to streamline collections in a way that works best for your business, and we ensure the highest levels of compliance and security. Contact us today to learn more about our services.
