Accounts receivable collections are often the last thing anyone wants to do, however, outstanding balances can seriously impact cash flow and hold your business back. By improving billing processes and adopting collections best practices for your business, you can improve the likelihood that you will get paid on time or in advance (yes, it really can happen!).
Implement the following collections best practices now, so you spend as little time as possible chasing your money...
1.Make it a Routine
Create and run a customized memorized aging report every week, and sort it by the amount owed, not alphabetical order. This way, you can see the largest outstanding invoices first. By adding this to your weekly management team report, you'll gain the visibility that you need into the balances that are overdue and you can concentrate your efforts on the big bucks first to reap the greatest return.
2. An Ounce of Prevention
Don't wait until the invoice is 30 days past due to call, your first call should occur 3-5 days before the due date, and can be framed as a customer service call to inquire about the client's level of satisfaction.
3. Be the Squeak
The squeaky wheel definitely gets the grease, so it's critical that you stay on top of your collections activities, weekly at a minimum, but ideally every three days. You want to indicate that you are serious about collections to prevent this cycle from becoming a routine habit for clients.
4. Measure, Then Mind
The only way to ensure cash flow success is to monitor results, and the old adage, "What management measures gets done" is especially true for collections. The most applicable management tool for measuring Accounts Receivable success is DSO - Days Sales Outstanding (read 3 Tips to Drop your DSO). DSO is a simple formula that results in a powerful figure:
DSO = Accounts Receivable / Sales x 360
The answer will be reflected as the number of days it takes to collect on your sales. Your goal depends on your industry and payment terms, but typically, you want to stay below 30 days.
By reviewing your DSO as frequently as you are doing billing, you can determine if your collection activities are successful. If not, it's time to revisit your collection call strategy and/or tweak your billing process to identify why your collection efforts are slipping.
By implementing collections strategies and adopting collections best practices for your business, you can improve the likelihood that you will get paid on time or even in advance.