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How to Collect Receivables Faster

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Are you looking for ways to collect receivables faster? Are you struggling to get paid on time? Or, ideally, even early? If so, you’re not alone. According to a Quickbooks survey of 2000 mid-size businesses, 65% reported that they waste on average 14 hours a week chasing payments. It gets worse. The study also found that businesses in the same size category were owed more than $300,000 on average. 

The good news is you don’t have to remain in that perpetual vortex that impacts your cash flow and ultimately can affect your long-term plans for growth. From sending invoices out faster to offering discounts for early payments to using technology to streamline your invoicing, there are a number of effective ways to make sure you collect receivables faster.

In this blog, we’ll share 7 proven ways to get your receivables on the fast track. By following these tips and best practices, you can set yourself up to get paid on time and reduce your accounts receivable.

7 Ways to Collect Receivables Faster

Although receiving some payments late is going to be inevitable, it doesn’t have to be the rule. When customers pay on time, you’re more likely to have a healthy cash flow that allows you to pay your own suppliers, save on financial administrative costs, meet payroll and other expenses and focus on growing your business.

So what steps can you take to facilitate speedier collections? You’ll be pleasantly surprised to learn that the top six tips and best practices are quite easy to implement one by one. But you don’t have to change your receivables process incrementally. Follow best practice #7, which incorporates all the previous tips, to see the quickest and most effective transformation of your receivables. 

1) Send Invoices Out Faster

There’s a sense of urgency a customer feels when an invoice is sent immediately after the completion of work or the receipt of goods that compels them to pay. So when you take days to generate an invoice and then send it through the mail, you’re diminishing that feeling of obligation. But putting the psychology of payments aside, the reality is the sooner you send an invoice, the faster you’ll be able to collect that payment because you’ve initiated the payment cycle.

If you’re creating and sending invoices manually, make sure you have a system in place that requires invoices to be sent as soon as possible. And don’t forget to factor in holidays that would impact invoice delivery.

The faster your customer receives an invoice, the faster they’ll be able to pay it.

2. Make Payment Terms Clear

It sounds like such an obvious move, but simply making sure that your payment terms are clearly stated on your invoices can make a difference in how quickly you’ll get paid. The information that should be included (and easy to find, not buried in fine print) are the due date, late fees, payment options, the availability of early payment discounts and any other terms that your customers need to be aware of. 

Clearly communicating your expectations and policies around payments can help you get paid on time. 

3. Send Reminders and Alerts

Don’t be afraid to send timely reminders to your customers about upcoming invoices or overdue payments. Your customers are as busy as you are and will appreciate the notice, especially if it’s sent in a communication with a professional, yet friendly tone in a meaningful timeframe. Some of your customers may even rely on the reminder to avoid making late payments and incurring the associated late fees.

An irregular, haphazard schedule of sending notices may remind some customers to make payment, but it can also send a message that your AR team operates without a standard process. 

Reminding your customers with timely, professional notices encourages them to make payments according to your terms.

4. Offer Discounts for Early Payments

Give some serious thought to offering a discount for customers who pay their invoices early. Everyone likes to save money, including your customers. An early payment discount, even a small one, can be an effective incentive to get your customers into the habit of paying before the due date. Not only will you get funds due you earlier, you’ll save on the costs of dealing with late payments.

Incentivize your customers to send in payments ahead of the due date with early payment discounts.

5. Offer Multiple Payment Methods

Accepting a variety of payment methods makes it easier and more convenient for your customers to pay their invoices. In addition to paper-based checks, consider accepting credit cards, PayPal, or other online payment options to help streamline the payment process.

Another way to make it easier for your customers to pay is by offering a self-serve feature in which they can access their account information and make payments without having to send an email, make a call or otherwise make contact with someone in your AR department.

Ensure on-time and even early payments by making it convenient for your customers to make payment.

6. Build Relationships with Customers

You want strong relationships with your customers for a number of reasons: customer retention and referrals are two that come to mind. But a professional relationship built on trust and mutual respect can also result in a customer who pays their invoices promptly. Take the time to communicate regularly and address any concerns or questions that your customers may have.

Customers who value your business relationship are more likely to pay on time.

7. Use Automated AR Software 

Using automated AR software can help streamline your AR process, from creating invoices to reconciling accounts.  The software speeds up every step of your AR process by eliminating the manual tasks that take up a lot of time and the inaccuracies that also end up causing delays. In fact, by adding automated AR software, you’ll be automatically implementing all of the first six best practices listed above.

As soon as sales data is entered into your ERP system, invoices with all the correct information are generated and sent electronically to your customers. What typically takes days using manual processes is accomplished in minutes with automation.

An automated AR process standardizes your invoices so that all the information about terms your customer needs is consistently and clearly displayed. But what really makes having an automated AR solution helpful–especially one that is AI-enabled–is that it can forecast expected payments and use custom workflows to drive your collections closer to terms.

Sending timely reminders and overdue payment notices in a timely fashion is automatic with a software solution. Your finance team won’t have to waste any time with this task. Instead they can focus on tasks that add more value to the business.

Most solutions will make it possible for you to easily accept multiple payment methods and offer a customer self-serve portal. Both of these features help to encourage paying on time–and even early payments. 

Software can even help foster better relationships with your customers by helping you maintain a professional and aligned brand. Your invoices will be accurate; your reminders and alerts will be sent at predictable intervals. With all these communications automated, your finance team will have the time to reach out personally to the customers who need help.

Speed Up Collections with AR Technology

The tips we discussed will definitely accelerate your collections if you put them into practice consistently. But if you really want to collect receivables faster, you should give serious consideration to automating your AR process with AI-driven technology.

Payference is quickly becoming the preference of finance teams in small and mid-market size businesses for that very reason. If you’d like to learn more about speeding up your collections, reach out today.