Ways to improve debtor collection

Every seasoned business owner knows that there is only one way to stay in business – getting paid. And that’s why having a good accounts receivable (or trade debtors) process in place is critical.

Accounts receivables gets money in the door but there are a lot of steps in the process, such as: finding customers that pay, billing them correctly, communicating clearly, and laying out enforceable consequences for slow payment.

So to help simplify the process, here are a few tips on how to setup a good accounts receivable process.

1. Be selective – don’t just do business with anybody

Do some research before taking them on. If you’ve been in business for a long time, you already know that there are customers who are good at paying and then there are some that aren’t. Get consent from your prospective customer and do the following – use your accounting software and run a credit check to find out if they’re regarded as good payers or call a few of their suppliers and ask if they get paid on time.

2. Put it in writing

Be clear with your payment terms before you start. Have the documents signed off before starting work and make sure there is no room for misunderstandings. Put in writing: your billing date and how much time they’ll have to pay. Point out interest, fees or legal action for late payment.

3. Send invoices quickly

Send invoices as soon as work is done. Don’t delay in sending your invoices as this creates a gap in the client’s mind between product/service delivery and the invoice. They will often start to forget how good your service was the longer the gap between delivery and invoicing.

4. Make payment easy
Make it easy for customers to pay you. Offer convenient payment options like debit card, credit card, services like PayPal, or direct debit. Invoices get paid up to 35% faster with these options.

5. Monitor payments

Keep a watchful eye on all your invoices, especially unpaid ones, and check your bank account regularly for payment. Keeping a list of what invoices have and haven’t been paid is critical to managing your accounts receivable.

6. Have a plan

Have a plan for slow payers in your accounts receivable process. Be prepared and have an action plan for invoices that go past due and stay firm in your policy unless there is a good reason for you to be lenient. Know when to send reminder emails, when to schedule calls, when to send past due invoices or statement of accounts, and know when the right timing is to involve a debt collector.

7. Be personal

Make time to call your customers – don’t just handle all your accounts receivable by email. Check with them every now and then. Ask if they’re happy with the products or services that you’ve supplied, let them know when they’re overdue and ask when you can expect payment. These types of calls should be part of your plan for overdue accounts.

8. Make bigger calls

Using your accounting software, check your customers payment history. Which of them are paying late? Make bigger calls – you could start asking them for upfront payments or and asking them how you could help them catch up with their payments. Maybe they’d prefer another payment method or maybe you could change their payment terms so you’re extending them less credit.

If that doesn’t work, think about letting them go. Having good customers is a big part of accounts receivable management.

Remember that the number one rule of accounts receivable management is making sure you have a plan for your debtors and be firm with your policy. Don’t treat invoices on a case by case basis. Your accounts receivable process should apply for everyone that owes you money. Because having a consistent accounts receivable process will help keep you in business.

Having some issues with Debtor Management – contact Ian or Dean to develop a plan.

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