Optimize payment terms
Optimizing your payment terms is another critical step to getting your receivables in time. Technology has evolved so quickly that market trends and business expectations have changed at lightning speed. However, the business climate isn’t getting any easier. Most resources are limited. Business owners must review their receivables management procedures (AR) when profit margins are limited. If you fail to recoup your account receivables regularly, you’ll struggle to maintain your profit margins. But the truth is that altering your payment terms will positively affect how customers remit their debts.
What exactly are payments terms?
Payment terms are typically linked to invoice payments. Your payment terms describe your transactions’ objectives, including the customer’s payment deadline and the penalties for delayed payment. Setting clear payment terms help you get paid because it makes it simpler for customers to comprehend your billing procedure.
Your payment terms must match your business’s objectives no matter your industry. An essential element of creating and sustaining a business’s success depends on its choice of payment arrangements. Your payment terms need to be clearly understood by all your receivables. If your payment terms change for any reason, your clientele needs to be informed about them.
How to improve your payment terms?
If you’re currently struggling with your business’ payment terms, you can apply the following steps for more effective results;
Using episode deals
Episode deals are special payment terms that break down the payment period to allow for installments. By making disbursements that break your customer’s payments into smaller installments, you’ll encourage them to pay early. You may also decide to let go of a portion of a fee owed. For example, you may split the customer’s total cost into several smaller monthly payments.
Some companies divide large projects into milestones, after which the customer makes payments. Installment approvals could be on the delivery of a specific undertaking or may be set according to a particular schedule – e.g. quarterly.
Set a consistent and rewarding payment system
Establishing a consistent transaction policy and promising rewards for early payments is the first step to improving the management of AR. Since some customers may want to negotiate their terms, offering flexible upfront options will simplify funds later. By ensuring that your customers are aware of your payment terms and early payment rewards during the sales process, you can also increase the likelihood that they will pay on time.
Accept online payments
Accepting online payments increases the likelihood of your invoices receivables by 30%. Unlike a check sent through the mail, online payment tools allow your customers to pay their invoices faster.
For your accounts receivable to be successful, you must clearly state all terms affecting your payment on invoices sent out to customers. Do not hesitate to include information about late fees. This will inform the customer beforehand about the penalty for defaulting on payment. This method is effective for short-term payments.