Having customers who don't pay on time is an unfortunate problem for any business, even that of accounting firms. For whatever reason, there are people who just habitually pay their bills late, whether by accident or design. Solving the problem of outstanding accounts receivables is urgent, for it will create a stronger financial and working capital position, sustaining your business with a solid current financial landscape and helping it to grow.
But how do you get those habitually late payers to change their ways? The Rules of Thumb blog from MoneyThumb would like to refer to some helpful information from an article at Funding Gate, with the following key precautions that will help any business or enterprise reduce outstanding accounts receivables.
1. DEVELOP KEY PERFORMANCE INDICATORS (KPIS) FOR OUTSTANDING ACCOUNTS RECEIVABLE
KPIs are instrumental in developing credit and collection plans. By analyzing existing customer accounts and customer payment history, your team will have a better idea of which areas should be targeted for improvement. Most KPIs within collections departments are based on reduction in average days to pay, reduction in days sales outstanding (DSO), reduction in average outstanding receivables, decreased cost of credit, improved cash forecast accuracy, and reduction in invoice disputes.
2. AUTOMATE THE PROCESSES
From reprinting invoices to sending due date reminders, to tracking collections communications—there is a lot of time-consuming yet vital work that can eat up the accounts receivables manager’s time and resources. Most processes can be simplified, or automated entirely.
One of the most common excuses heard around accounting departments is, “I never received that invoice!” It’s a threadbare defense that often leads to further payment delays. The task of reprinting—or re-delivering via fax or email—can be simplified when working within a system that generates PDF copies of invoices that can be accessed and sent to clients with one click.
Furthermore, most of the communication that is provided to late accounts is standard and can be automated based on the amount owed, days outstanding, and type of customer. The use of templates can save accounts receivable managers valuable time drafting emails while eliminating the chance of error.
3. ESCALATE THE “RED-FLAG” ACCOUNTS
Unfortunately, you will occasionally service the customer who is facing bankruptcy, or simply refuses to pay an invoice due to a dispute or a cash flow problem. In these cases, it’s necessary to escalate the account to management for higher-level discussions, or, in extreme cases, turn them over to third-party collections agencies. In these cases, accounts receivables managers can benefit from utilizing tools to identify troubled accounts, store notes, and track just how many invoices—and just how much money—is overdue. In a nutshell, it can be difficult to escalate the problem without keeping track of the proper evidence.
The accounts receivable department should have documented procedures for escalating accounts—such as if an account exceeds a certain limit, or is past due by a pre-defined amount of time.
To assist you even further in getting slow payers to ante up their money, download this free ebook from Funding Gate titled Payment Reminder Templates that Work.
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