If you extend credit to your customers, you know just how difficult it can be to get paid. Invoicing your customers requires attentive management and to have a successful A/R process, a certain dedication is required. If you want to get paid and get paid faster, follow these 8 do’s and don’ts of receivables management.
Don’t assume credit is for everyone – If your business offers net terms, they’re not for everyone. Make it rule to only offer net terms to customers that can provide a reference to confirm their business is financially stable and they have a history of prompt payment.
Do get to know your customers – If you’re making net terms a selective offering (which you should), you must vet your customers. All customers should fill out a credit application prior to doing business with you. This application should give you access to information you would need to check their credit report, bank references and their trade references. Trade references are the most valuable, as speaking to someone who they have done business with in the past is the best way to understand how they will pay you. If you have a customer who applies for credit that is a fairly new business, consider starting on less flexible terms with them and let them work their way towards lengthier terms, allowing them to prove they are reliable.
Don’t assume financial health is stable – If you originally take on a financially healthy customer, don’t assume they’ll stay that way. Cash flow changes monthly for businesses (as you know too well). Make it a habit to keep an eye on your customers who operate on net terms. Be looking for any unusual financial activity. You can do this by pulling consistent credit reports and tracking for such things as judgments, suits, liens or bankruptcies.
Do stay on their radar – It’s not always easy to remember the due dates of payments, so help your customers to do so. The week before a payment is due (and if you haven’t received the money), shoot your customers a quick reminder email. This helps your customers keep your invoice at the top of the pile, not forgetting when it is they must pay you.
Don’t just accept checks – You must be accepting payments online. It’s as simple as that. Giving your customers this option can get you paid 17 days faster than the average.
Do motivate – Help your customers to pay you by incentivizing them to pay. You can consider rewarding early payers (a more friendly approach) but you should also establish a finance charge for late payments. Such adjustments to the total amount owed (whether it’s trying to get a discount or trying to avoid a late fee) can significantly help you get paid faster. If you decide to charge a late fee, be sure to check your state’s usury laws to verify you are not overcharging.
Don’t Wait – The day a payment becomes past due you should take action. The longer you wait, the harder it is to get paid.
Do look for alternatives – If you ever get to the point that you feel you have no chance of getting paid, there is still hope. If you have a large delinquent account, you could call a debt collection lawyer to take legal action. If you need cash immediately, consider invoice factoring, which allows you to sell your invoices to factors. The factors pay you a percentage of the invoice and then pursues the invoice themselves. And, of course, if you’re in construction, there is always the option to file a mechanic’s lien. This will claim the project jobsite as collateral for your debt. A mechanic’s lien filing comes with a lot of consequences (for those it is filed against). For example, it prevents the property from being sold or refinanced. As you can see, no matter what payment situation you’re in, there is always a way to find help.
Meredith Wood is the Community Manager at Funding Gates, the world’s first CRM for receivables management. An avid small business writer, Meredith’s work can be seen on AMEX Open Forum, The Receivables Exchange, Small Business Bonfire and many other small business sites. For more information on how Funding Gates can help you manage your receivables and get paid faster, connect with Meredith on Twitter @FundingGates or at http://www.fundinggates.com.