When it comes to cash flow, and having enough of it, you can’t afford to let your accounts receivable get out of control. After all, your money is better off in your bank account, rather than someone else’s.
In an ideal world, your accounts receivable would be neat and tidy. Every invoice would be paid on time and in full, without exception. But for many businesses, that’s not the reality. The good news is that there are things you can do to rein in your accounts receivable to rescue your cash flow.
Be clear on what you’re charging
Let’s go right back to the very beginning of your sales process. Are your customers clear about how much they’re being charged, the frequency of invoices and what they’re getting in return? If they’re not, you probably don’t need to look very far to find the cause of any accounts receivable blowouts.
Transparency and simplicity are key here. Clearly outline your pricing structure and payment terms in your contracts and agreements. Avoid any ambiguities or hidden fees that may cause confusion or disputes later on. Ensure your customers understand and accept the costs as part of the sales process.
By being transparent upfront, you can prevent a situation where customers question their invoices or try to avoid paying them altogether. It also helps to establish a foundation of trust and professionalism that will serve your relationships well.
Include invoicing in client onboarding
You’d be surprised at how many invoices go unpaid because they don’t reach the right person within the organisation. The invoice bounces around between different people or it sits at the bottom of an inbox, unactioned and unpaid. The lack of payment isn’t malicious or intentional. And it’s easy to fix.
Much of this can be prevented by ensuring you capture the right invoicing contact details from the beginning as part of your onboarding process.
Don’t assume that the person signing the contract is that person. Ask your customer to provide the details of who to send the invoice to. It’s also good to ask for any quirks in their accounts payable process that you should be aware of. This will help streamline your invoicing process and ensure that invoices reach the right person promptly, improving the chances of timely payments.
Develop a process for dealing with slow payers
Slow payers are an inevitable part of managing accounts receivable. But that doesn’t mean you should accept slow payment as the norm. We recommend having a process in place for dealing with this issue … and then sticking to it.
Don’t shy away from enforcing your payment terms. Set clear expectations with your customers and establish consequences for late or missed payments. Deadlines should be reasonable, as agreed by both parties.
Your process should include following up overdue invoices promptly. If payments aren’t received within the agreed-upon timeframe, you can then escalate to a collections process. This is about striking a balance between maintaining good customer relationships and ensuring that you’re paid for the products or services rendered.
Implement an accounts receivable system
None of this will happen without an accounts receivable system that includes clear accountability and ownership of the process. If someone isn’t reviewing accounts receivable regularly, it can cause much bigger problems down the road. Whether that is a member of your internal team or an outsourced finance team like we offer at Vital Addition.
Your system should include processes for streamlining your invoicing, tracking payments and managing collections. You should also be clear on deadlines and responsibilities, ensuring that whoever is accountable for your accounts receivable has the necessary tools and resources for the job.
A well-organised system can be the difference between a healthy cash flow and a serious problem.
Leave your accounts receivable to the experts
If your accounts receivable is looking dire, or you want to prevent a dire situation from developing, we can help. Our outsourced finance team can whip your accounts receivable into shape and keep it that way.
Contact us to discuss your business needs and how we deliver reliable, flexible and cost-efficient services to match.