Even with steady sales and growth, if your company has continual cash flow issues due to lack of accounts receivable management, that could slow or stop your company’s growth.
Nearly one-third of businesses find that they are unable to pay vendors, unable to make loan payments or unable to pay themselves or their employees, according to a report by Quickbooks.
The report also highlighted that more than a quarter of entrepreneurs had to turn down a sale or opportunity due to insufficient cash flow.
“There are many different things that go into running a successful business, but cash flow is what keeps it running,” said Aaron Dyer, a business banking regional manager at City National Bank.
Having ample cash flow allows you to continue expanding, whether you want to buy your company’s building as a way to generate another stream of income instead of renting or you want to upgrade your company’s technology and need cash to lease equipment.
Small businesses that manage their accounts receivable effectively have a formalized process for collecting accounts receivable as well as strategies for spotting potential cash flow issues and addressing them before they become detrimental to the business.
CREATE AN A/R AGING REPORT AND CALCULATE YOUR ART
The first step to take control of your collections efforts is to determine the current payment status of all your accounts receivable.
This is done by creating an accounts receivable (A/R) aging report, which will track and measure the payment status of all your customers. This is a built-in feature of PaidYET’s merchant dashboard, which allows for the management of payment requests, tracking of payment status, and the ability to send payment reminders.
Accounts are broken down by the by date since the invoice was issued. The report also lists the amounts due, and whether or not the payment request has been paid. If this report is reviewed on a regular basis, it can help to address any potential problems before the bill becomes past due.
BE PROACTIVE IN YOUR INVOICING AND COLLECTIONS EFFORT
One of the important steps to ensuring on-time payment is making sure all parties are on the same page regarding payment deadlines, amounts owed, and payment methods.
Typically, this conversation happens when a business first becomes a client, but it can also happen if you’ve updated your accounts receivables collections process or if a client is continuously overdue and you need to realign expectations.
You should also ensure that you’re making it as easy as possible for your client to pay invoices. For example, make sure your invoices are clear and complete, with no missing information that might cause your client’s accounting department to kick it out of the system for further review. Businesses utilizing PaidYET’s Payment Links, reported an increase in the rate at which invoices were paid, simple because of how easy it is for their customers to pay.
MOVE FAST ON PAST-DUE RECEIVABLES
Studies show that the longer receivables go uncollected, the less likely they are to ever be collected, either partially or in full.
For that reason, your business will have the best chance of collecting if you are aware of any past due receivables and can act quickly.
Whomever you choose to manage accounts receivable needs to understand that they must contact the client on the first day that a payment is late.
If your company has a policy regarding late payments, gently remind the client of any penalties they may face for late payments in the future.
Firmer communication may become necessary if payment is not forthcoming within a reasonable amount of time, including emails or letters informing the client that legal action is a possibility if the payment is not received by a set deadline.
Having an open conversation with clients can not only work to build stronger client relationships for your business but also allow you to understand why the payment was late and avoid that in the future.
CONSIDER OFFERING AN EARLY PAYMENT DISCOUNT
Another way to help manage accounts receivable is a 2/10, net/30 discount, where customers receive a 2 percent discount if they pay within 10 days, instead of 30. PaidYET Merchants have the ability to offer discounts on their payment page that they can activate and deactivate as they see fit.
For this type of discount, it depends on the industry. If you’re in a very tight margin industry where every dollar counts, that 2 percent discount could be a lot of money to your prospective client. Where a business can afford it, offering and encouraging early payment is important and can be very helpful in boosting cash flow.
It is important to seek advice from either banking professionals or industry professionals to evaluate whether this would be a viable option for your business to implement, based on your specific industry.
CONSIDER OFFERING A PAYMENT PLAN
You may have a past-due client who informs you, after a few payment reminders, that they’re having cash flow challenges and need an extension to pay their bill. If this happens, consider offering the client a payment plan for their outstanding balance.
Setting up a payment plan and being flexible is helpful, especially when it comes to long-term clients in terms of building loyalty.
PaidYET offers merchants the ability to enable payment plans for their customers at the click of a button, with custom parameters they can set for the payment schedule, making it as easy as possible.
DIVERSIFY YOUR CLIENT BASE
Small businesses often come out on the short end of the stick when it comes to accounts receivable collections — especially when they are doing business with large corporations that stretch out their payment terms to vendors and suppliers — sometimes for up to 90 or even 120 days.
While working with large retailers can be great, client diversification is important. If you have a few large clients who typically pay outside of a 30- or 45-day window, focus on acquiring additional smaller clients and ensuring they pay on time so you ensure healthy cash flow while you wait for the longer-term payments.
MAXIMIZE YOUR CASH FLOW AND MAKE IT EASIER TO ACCEPT PAYMENTS
Whether it’s through paper checks or electronic payments, the easier you make it for your customers to pay you, the faster you will get your money. PaidYET is a tool that will help you simplify your collections process, get started for free today or contact us for a guided tour.
