Improving your accounts receivable should be a top priority for you as a young entrepreneur or a business owner. Moreover, if you do not receive customer payments, the money you make selling your goods or services on credit cannot be considered to be enough income. Your cash flow, one of the best measures of long-term business performance, will improve if you can better manage your accounts receivable and collect payments from your customers.
Account receivables gauge how efficiently your business turns its receivables into cash. You can use the receivables turnover rate to assess how efficiently you extend credit to prospects and collect outstanding payments.
We will review ways to increase your account receivables while maintaining a sound financial position. Now, let’s look at some quick tips to boost your account receivables:
Having a strong customer base is a fantastic strategy for increasing accounts receivable. With this system, your company can achieve funds receivable collections. Create substantial, beneficial relationships with your customers using social media and a customer relationship management system (CRM). With that, your chances of getting paid increase but it may also depend on your proximity to your customers.
Improving payment terms is inconvenient, although it is vital. It’s one of the necessary steps you need to take to ensure the financial stability of your business. You need to enforce favorable payment terms after you negotiate them with clients. Good terms will ensure your payment arrives on time. Surprisingly, many companies do not enforce payment terms and often allow their customers to pay well past the due date, leading to financial instability.
In your case, ensure you consider presenting the customer with a payment plan for the unpaid balance. A payment plan and accommodation are worthwhile, especially when retaining long-term customers.
There may be a cost associated with encouraging early payment, but the cash flow and time saved on collecting payment may outweigh it. For instance, you may state on your invoice that customers will receive a 5% discount if payment is received within ten days after the invoice date. Customers that want to save costs might be more likely to make the most of this offer and increase their cash flow quickly.
Ensuring that all parties know payment deadlines, amounts due, and payment arrangements is one of the most critical steps to ensuring timely payment. It would help if you started the conversation early by ensuring customers know when their payments are due. This conversation often takes place when you gain a new customer. Also, you may send a memo to your customers if your process for collecting receivables has changed or if a customer is consistently late and needs to realign expectations.
Also, make sure that paying bills is as easy as possible for your customer. To avoid having your client’s accounting department flag an invoice for additional review, ensure your invoices are clear and complete, with no missing details.