How to Speed up Account Receivable Payments

            Cash flow is a critical element of a business survival and an unpaid account could mean life and death to a business. Unpaid accounts can create a big surprise in the cash flow estimates and leave a business liable to its creditors, employees, landlord, or suppliers. Entrepreneurs must take action both before and after an account becomes overdue.   

            According to the rule of thumb prevention is always better than cure. Entrepreneurs can start taking action prior to the due date in order to encourage prompt payment of invoices. By ensuring accuracy, clearness, and timeliness entrepreneurs can accelerate payments and save time. For example discrepancy of price between invoice and contract/purchase order would cause the invoice process to be redone and that goes against the entrepreneur who needs instant cash to pay the bills. It would be helpful if entrepreneurs highlight the term of sales like the “balance due “and include contact number. After being contacted entrepreneurs need to make sure that billing questions will be responded quickly and accurately.

            Small business owners can utilize a variety of techniques to speed payments. Taking orders and sending invoices by electronic means like fax or e-mail, and sending invoices as soon as goods are shipped and services are done can greatly accelerate the paperwork. If possible charging down-payment is another good method to increase the chance of receiving payments in a timely manner.

In order to speed payments and keep a solid cash flow, entrepreneurs need to be proactive. Being proactive includes the daily deposit of customer checks and credit card receipts. The more convenient way to do deposit is using a bank’s lockbox collection or subscribing to an electronic check conversion service which also minimizes losses from check fraud. Entrepreneurs must be cautious and watch for signs that a customer may be about to declare bankruptcy. In case the customer did file for bankruptcy, entrepreneurs must jump on the case and act immediately. Generally small business owners can respond to bad credit customers by restricting their credit until past-due bills are paid. Entrepreneurs must be careful about cash and constantly track the result of the company’s collection effort.    

After all the efforts, sending notices, and making telephone calls customers may still fail to make the payments. In this case entrepreneurs may send a letter from the company’s attorney, hire a collection attorney, or as the last resort turn the account over to a collection agency. Attorneys and collection agencies typically charge around %30 so that is not necessarily what the entrepreneur wants and that is defiantly not what the customer wants! 

Resource:

Scarborough M. Norman, Wilson L. Douglas, Zimmerer W. Thomas; Effective Small Business Management, Pearson Prentice Hall, Upper Saddle River New Jersey: 9^th Edition.