There are many ways to get into business, but only one way to stay in – you have to get paid. That’s why a good accounts receivable process is critical.
The job of accounts receivable is to get money in the door. There are a lot of steps to that process. You need to find customers that pay, bill them correctly, communicate clearly, and lay out enforceable consequences for slow payment.
Here’s your small business guide to accounts receivable management.
If you work for businesses, you already know that some are good at paying and some aren’t. It doesn’t have to be a lottery. Do some research before taking them on:
Spell out when you’ll be billing your customer, and how much time they’ll have to pay. Point out the consequences of late payment – such as interest, fees or legal action. Get the payment terms signed off before starting work. Don’t leave any room for misunderstandings.
Send your bill straight after the work’s done. It’ll take time for your customer to approve it and pay it, so why not start those wheels turning as soon as you can.
Invoices get paid up to 35% faster when customers are offered convenient payment options like debit card, credit card, services like PayPal, or direct debit.
Keep a list of all your invoices and check your bank account regularly for payment. Invoices should stay on your watchlist until they’re paid in full. Knowing what has and hasn’t been paid is absolutely critical to managing your accounts receivable.
Decide what actions you’ll take when invoices go past due:
Learn how to deal with unpaid invoices and write up your own plan of action for overdue accounts. Stick to your policy unless you have a really good reason to be lenient.
Don’t try to handle all your accounts receivable by email. There will be times when you simply have to call. Check they’re happy with the products supplied or work done, let them know they’re overdue, and ask when you can expect payment. Make these types of calls part of your plan for overdue accounts.
Check the payment history of your customers (which should be simple to do on your accounting software). Are some of them always late paying you? Maybe it’s time for a chat. Ask if they’d prefer another payment method.
Or change their payment terms so you’re extending them less credit. You could start asking them for upfront payments, for example. If that doesn’t work, consider letting them go. Picking and choosing good customers is a big part of accounts receivable management.
Make sure you have a plan for your debtors. Don’t treat invoices on a case by case basis. Do the same things on the same days for everyone that owes you money. A consistent accounts receivable process will help keep you in business so make sure you have one that: