5 Tricks to Improve Collection of Your Receivables

Most businesses do excellently in producing and delivering products and services to customers. However, most of the time, there is difficulty in collecting payments. If the problem is unresolved, it may accrue to cause a cash flow crunch. You should determine credit worthiness of each customer before agreeing to take payment as receivables.

As a business owner, yours is the prerogative to set and implement reasonable and logical credit policies. Here are five of the best proven techniques that you can use to optimize your cash flow and at the same time enforce your own terms in a more diplomatic yet firm manner.

1. Require deposits if possible.

It is advisable if you would require about 10% to 50% deposit of customers’ final purchase price during order time. This practice is most recommended for large sales orders, custom orders, and produce-to-order manufacturing. This trick can truly be helpful in preventing possible cash flow shortage in the future. At the same time, it can be a good strategy to ensure the commitment of customers to their significant order. Take note that when implementing this strategy, your business should clearly explain to the customers that deposits are in no way refundable.

2. Encourage the use of credit card payments.

It is ideal to ensure the capability of your business in accepting payments made through major credit cards like American Express, MasterCard, and Visa. Credit card payment is undoubtedly the second best thing to cash payment. It can help significantly lower payment risk. Customers who usually dislike paying ahead of time or putting deposits can pay the amount through their cards. They can ‘hold’ the amount of sale and process the payment only following completed service of shipment of the product. Credit card sales is usually processed and debited to your business account in as fast as one to three days, with a typical service fee of just 2% to 3.5%.

3. Closely monitor receivables.

Compute the average age of all outstanding invoices on a weekly basis. Sort the receivables by customer. You may assign your staff to assume responsibility in generating reports on customer receivables information. Set an ‘overdue’ status as soon as invoices reach five days past your terms. It may be reasonable to tie your managers’ compensation packages with the achievement of receivables collection goals.

4. Use the telephone for following up receivables.

It is not advisable to send dunning letters, account statements, and overdue notices because those just irritate customers. Assign staff who would call customers to follow up on overdue invoices. Your assigned people should politely ask the reasons for the delayed payments. In general, up to 80% of businesses’ slow payment issues are resolved this way. At the same time, rapport is established between your personnel and customers.

5. Offer early payment discounts.

Most of your customers would be delighted and motivated to settle their dues on or before maturity dates if they would be given hefty discounts in return. Much heavier perks should be offered to customers who pay in cash upon delivery of goods. Treat it as a form of reward for good paying clients.

Andrew has been helping business improving their finance and cash flow with the right business loan. When he is not working, Andrew blogs at ALC and is also a regular blog contributor.