Donna Hines
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The success of your business is clearly evident; orders are pouring in. However, despite these positive developments, a significant amount of outstanding invoices is still hindering your ability to pay suppliers. Similar to your personal finances, where the lack of a salary jeopardizes your groceries, effective accounts receivable management is crucial. Optimizing accounts receivable processes, making them faster and more customer-friendly, is essential to ensure timely payments. In this article, we share seven valuable tips to strengthen your accounts receivable management.
Accounts receivable management sometimes does not receive the highest priority, with the idea that customers will eventually pay on their own. However, the longer invoices remain unpaid, the less financial space remains for crucial payments to suppliers, staff, or strategic investments for the future of your business. An unpaid invoice can even lead to the loss of a customer who ultimately refuses to pay. Therefore, effective accounts receivable management is an essential part of effective credit management, with the preservation of trust in business relationships at its core. Below are seven valuable tips to optimize your accounts receivable management.
After delivering services or products and sending an invoice, a customer becomes a debtor. While the word ‘debtor’ may sound negative, a commercial approach remains essential even then. Maintain the good business relationship by contacting the customer after delivery, verifying the receipt of the invoice, and promptly resolving any complaints. Stay involved and prevent complaints from surfacing only after the payment term has expired.
Tip! Request a credit report for only $12.95 for each new customer. Determine, based on the creditworthiness in the credit report, whether you want to do business with this customer. In some cases, it’s better not to do business with certain companies in advance; this saves worries, legal steps, and money afterward.
Keep contact with debtors personal and positive. Use the name of the contact person and make payment easy. Consider digital invoices or SMS messages with payment links to simplify the process. For significant orders in installments, align the payment terms with the customer’s preferred timing.
Ask kindly if the customer has received the invoice, but do not hesitate to remind the customer of the agreements if they are repeatedly not followed. A strict accounts receivable policy prevents customers from ignoring payment terms.
Divide your customers into different segments based on risks and opportunities. Adjust your approach based on the type of customer. Dare to address customers on payment behavior and consider flexible delivery terms for fast-growing companies.
Focus on automation for smaller customers to free up time for essential relationships. Automate the payment process for the majority of customers to enable more effective accounts receivable management.
Evaluate the status of your accounts receivable management by calculating the Days Sales Outstanding (DSO). This allows you to understand the average duration before invoices are paid and the financial impact on your business. Make costs transparent and understand what a reduction in DSO can yield.
Use software to manage your accounts receivable portfolio. Keep track of outstanding amounts, overdue invoices, and high-risk customers. Avoid unpleasant surprises and take timely measures, such as advance payment, in the face of impending bankruptcies.
By applying these practical tips, you not only strengthen your accounts receivable management but also optimize your cash flow. This enables your business to grow and still stand fully on its own two feet.
Have you got questions about your order? I will be happy to help.