As a business owner, if you’re only looking to your income statement to gauge how well your business is operating, you’re forgetting about a huge portion of your income. What the income statement doesn’t tell you is whether you have enough cash to cover daily operating expenses—this is where accounts receivable comes in. When your invoices sit for over 90 days without being paid, there is an ever-lessening chance of ever seeing the money you’re owed. Here are a few strategies to ensure your business is manages receivables as efficiently as possible.
1. Accelerate Invoicing
If you’re still sending invoices through the mail, you can shave hours, if not days, from your accounts receivable process by simply switching to electronic invoicing. Of course, invoices sent by mail include a two to four-day buffer while they are in transit, whereas electronic invoices are in your customer’s inbox in moments. What’s more, if you currently send invoices on a monthly cycle, save time by invoicing as soon as the work is complete.
2. Shorten Payment Terms
Most businesses use net 30 payment terms. A simple switch of payment terms to due on receipt can mean you get paid faster. You will no longer have to check your invoice due dates, since you’ll know that anything not yet paid is still outstanding no matter when it was issued.
3. Manage Relationships
Managing your accounts receivable is easier when you have a good relationship with your clients. When you’ve built a solid relationship, you can feel good about reaching out to customers about outstanding payments. So, in between sending invoices and following up on payments, make sure you are responsive to your customers’ needs and that you communicate with them on topics other than money owed.
4. Expand Your Payment Options
The more payment methods your customers have available, the easier it is to get paid. If you integrate invoicing with your Enterprise Resource Planning (ERP) system, sometimes payments can be made without ever leaving the system. Even if you don’t use ERP, you should at least offer payment through PayPal or Stripe, credit cards, and EFT or wire transfer.
5. Outsource Your AR Collections
It takes a lot of time and money to manage your accounts receivable on top of all the other aspects of business ownership. When you outsource your accounts receivable to a third-party provider, you can free up employee productivity, and smooth out your company’s cash flow. If cash flow is an issue, factoring receivables is also a possibility—you’ll transfer your receivables to a separate company for collection and see about half of their value up front.
If managing accounts receivable is becoming an ongoing battle, there are steps you can take to make this process more efficient. Frequent invoicing, shortened payment terms, and multiple payment options can mean you get paid sooner. If all else fails, outsourcing AR will save you the trouble, so you can focus on what matters most to your business.