Timely payments are vital for your business’s health. Late collections can disrupt cash flow, which can make it challenging for you to cover operating expenses like payroll, supplies and rent.
This instability can cause you to rely on loans or credit lines to cover your expenses, which can lead to additional interest costs and financial stress.
Late payments can also take up valuable time and resources since you need to give your employees the additional task of chasing down overdue invoices.
Having an efficient corporate cash collection method can help ensure your customers pay on time. With it, you can maintain stable cash reserves you can use to cover your expenses and fund your business growth.
If collecting payments from your customers is getting difficult, read on to discover ways to improve your accounts receivable collection.
Why Do Some Customers Don’t Pay on Time?
There are several reasons why customers fail to pay you on time. The common ones include:
- Difficulties coming up with the payment due to financial issues
- Customers finding your payment methods inconvenient
- Poor financial planning
- Failure to receive invoices
- Absence of incentives or repercussions for late payments
By implementing new collection practices and strategies, you can avoid these issues and get your expected payments on time.
Ways to Improve Payment Collection
Below are some tips and strategies that can help you improve your accounts receivable collections:
Set clear payment terms and expectations at the start.
Whenever you have a new customer, discuss with them your payment terms. These should include the date they need to pay, the grace period you offer (if any) after sending them the invoice, and payment methods.
Also, include details about incentives, such as discounts your customer can enjoy when they pay on time and charges you’ll implement if they are late in paying their dues.
Put these details in the contract or service agreement and have the customer sign it to make sure they agree with the terms.
If you need to send invoices, ensure you know the right email address to use. Inform the customer about the email address you’ll use as well so they don’t ignore it or mark it as spam.
Doing this at the start can help you avoid issues related to late payments.
Send invoices right away.
The quicker you send an invoice, the sooner the customer can pay it. When the invoice is delayed, the customer may forget about transferring their fee or misplace the bill, which can lead to late payments.
Sending an invoice immediately after delivering a product or completing the service keeps the transaction fresh in your customer’s mind, which encourages early or on-time payments.
Additionally, a prompt invoice demonstrates your professionalism and helps set clear expectations with your customers.
Collect the payment upfront.
Asking the customer to pay upfront when they purchase your product or service means you avoid payment collection issues.
When your customers pay immediately, you don’t have to worry about sending an invoice and having them make excuses about not receiving it or getting it late, which, in turn, causes delays or non-payments.
However, many customers may not be open to this. You can entice them to agree by offering a discount when they pay upfront.
You can also offer them the option of paying half or a down payment upfront. With this strategy, you can get a fraction of the fee, which can help with your cash flow.
Since the customer doesn’t have to pay the full fee, they may have fewer difficulties coming up with the remaining payment. You’ll likely get paid without issues as well.
Offer multiple payment channels.
One effective way to improve your business’s payment collection strategy is by offering different payment channels that make it easy for customers to pay you.
Many remittance and money exchange companies offer solutions that allow businesses to collect cash payments through their branches. This service enables customers to make cash payments quickly and conveniently.
The service provider will then transfer all payments collected to your account at the end of the day. This allows you to benefit from the same-day deposits directly in your bank account.
This solution also gives you access to detailed transaction reports so that you can check which customers have paid and which ones have not. You’ll also know the exact date and time payments are made.
Aside from this option, offer other payment channels, such as electronic and credit card payments and direct bank transfers.
You can also ask your customers the specific payment methods they prefer to ensure you can offer them.
With several payment options to choose from, you make it less difficult for your customers to pay you.
Send gentle reminders and follow-up emails.
After sending out an invoice, send the customer a reminder email or text message. Send this several days before the due date so that they still have time to make the payment.
If the customer hasn’t paid past the due date, send them a follow-up message. Include the payment terms so that they are reminded of their responsibility.
Remember to keep things professional when creating these messages and avoid being aggressive. You still need to provide good customer service at all times so that you can boost customer loyalty and maintain a great reputation to attract new buyers.
Customize invoice schedules for customers.
When you customize the billing terms to suit your customers’ preferences and financial situations, you can make the payment process easier for them.
Ask your clients if they prefer weekly or bi-weekly invoices or if they find extended payment terms more advantageous. This flexibility helps reduce payment delays and shows that you understand their cash flow needs.
This, in turn, can encourage your customers to pay on time and remain loyal to your business.
Improving your accounts receivable collections requires a thoughtful approach. Start by implementing the above tips and strategies to minimize this issue and keep your cash flow healthy.
Also, regularly review and modify your collection practices to help ensure your business continues to thrive.
