Remember, effective accounts receivable management not only ensures timely payments but also strengthens your relationships with customers, demonstrating professionalism and trustworthiness. So, without further ado, let's explore the tips.
Mastering the Art of Accounts Receivable Collection: 10 Invaluable Tips
1. Use data effectively
Data is the most valuable asset in this digital age. Having complete data about customers, including their payment statuses, trends, and financial health, is essential to ensure successful payment collection. Accurate customer data is crucial not only for effective client communication but also to prevent confusion or the dissemination of misleading information.
Utilizing technology can assist in centralizing all customer information, establishing a single source of truth. This approach enables you to easily access records for individual customers, and apply filters based on payment status, purchase details, etc., when contacting them for payment collections.
2. Be flexible in your payment terms
Many customers fail to pay because of cash woes at their end – sales might be bad or it might be a dull season. Check if restructuring their payment plan (e.g. making it Net45 instead of Net30) will help them. Or ask if theyd be able to make part payments or split payments. Your goal should be to get your due amount without affecting customer relationships. Putting too much pressure on a financially stressed customer to pay the whole amount immediately may even lead them to become delinquent, which is not in your best interests.
3. Send invoice immediately
Receivable collections are interrelated with other AR functions like invoicing and cash application. For faster collections, you must send customers invoices as quickly as possible. Also, make sure that the invoices are error-free. Wrong invoices delay collections. Adding payment links within the invoices helps make collecting accounts receivable faster.
We surveyed 150 mid-market CFOs and found that sending invoices immediately is the measure that 37% of CFOs plan to undertake in order to enhance cash flows.
Source: The State of CFOs Office: A Mid-Market Perspective 2022 Report
4. Send reminders well before the due date
A significant percentage of invoices are delayed because customers inadvertently miss the due dates. Implementing strategies such as sending reminder emails and push notifications through their accounts payable portal can greatly assist customers in recalling their payment responsibilities in a timely manner.
To further streamline this process, you can leverage an order to cash software to send reminders to clients at predefined intervals (e.g., a week before the invoice is due, 1-3 days before the due date, etc.).
Depending on your relationship with the client, as well as the industry and geography in which you operate, you can also promptly call the customer for a friendly reminder.
Additionally, employing reminder and dunning emails with embedded payment links is known to be more effective in collecting accounts receivables.
Check out RadiusOne e-Invoicing app to embed payment links within your invoices and dunning emails.
5. Follow up on overdue payments
Properly following up on overdue payments ensures that the outstanding invoices are addressed promptly, encouraging timely payments and improving cash flow. By maintaining regular communication with customers and sending reminders, businesses can emphasize the importance of fulfilling payment obligations.
Following up on overdue payments demonstrates professionalism and dedication to financial stability. Effective follow-up strategies contribute to maintaining positive relationships with customers and reducing the number of outstanding invoices.
6. Manage credit risk
Payment collection is closely associated with customer credit risk as well. The higher the credit risk score of a customer, the more difficult it is likely to collect payments from them and vice-versa. Our AI-assistant Freeda can help you prioritize accounts and improve your receivables and collections management.
7. Follow standard procedures
Creating a written document that outlines the steps involved in collecting accounts receivable can assist your collectors in adhering to company-wide standard procedures when contacting clients for payments.
This document should detail when to send dunning emails, when to initiate customer calls, and how to initiate collections conversations.
Additionally, it can provide templates for emails and calls.
Having a documented collection procedure greatly facilitates the training and onboarding of new staff members.
8. Train your employees
Collecting accounts receivable is no easy job. You have to walk the tightrope between maintaining customer relationships and ensuring cash flow. Training your employees on various skills such as negotiation, clear communication, ethics, and persuasion becomes important to ensure strong collections and customer relationships.
9. Offer a good customer experience
Receivables and collections management is a pivotal aspect of overseeing your businesss finances. However, its crucial to emphasize that these activities should never involve resorting to threatening language when communicating with your customers.
Instead, it's essential that your collectors possess the ability to empathize and engage in courteous conversations with clients. By understanding the reasons why customers might be experiencing challenges in meeting payment deadlines—such as their own cash flow limitations, banking complications, or product-related issues—you can foster good customer relationships.
At the same time, collectors also need to deal sternly with customers who give unreasonable excuses. Even then, ensure that you do not jeopardize relationships or hurt the reputation of your business.
10. Embrace automation
In today's fast-paced business environment embracing automation is crucial for optimizing your accounts receivable collections process. Through the implementation of accounts receivable automation software, you can digitize and centralize your collection efforts, send timely and error-free invoices, automate reminders and notifications, and effectively manage credit risk.
This approach enhances collaboration between teams and streamlines routine tasks like invoice preparation and report generation. Furthermore, automation guarantees standardization, liberates your team from monotonous tasks, and empowers them to concentrate on cultivating robust customer relationships and analyzing customer behavior.
But how does this translate into real-world success? Take a look at our blog that delves into the working capital metrics of KDP, comparing them with competitors PepsiCo and Coca-Cola. The insights from this analysis, along with a discussion on O2C modernization efforts, provide a comprehensive understanding of the impact of such strategies on a company's financial health.
[Read more: KDP's Working Capital Metrics - A Comparative Analysis with PepsiCo and Coca-Cola]
