Do you have large balances sitting in your accounts receivable? Did you know that collecting on accounts receivable is one of the most common and toughest problems faced by businesses? If you’re having issues collecting from past-due accounts, then you’re certainly not alone! Check out the rest of this article for some helpful tips to help you better collect on your accounts receivable!
Staying on Top of Accounts Receivable
Accounts receivable, by nature, are a tricky thing to deal with. The concept of accounts receivable is fantastic, as it allows you to capture more customers by offering the ability to pay over time. This is the exact reason why credit cards are so popular. Accounts receivable are essentially a business’s line of credit that they extend to customers.
Anytime you allow a customer to receive a good without paying for it at the time of sale, you’re opening yourself up to a lot of potential risk. Even if your customer has every intention of paying, there is the possibility that they simply forget or lose their bill in the mail.
Even worse, there are certainly nefarious customers that will do their best to deceive you. Some will make any number of reasons to avoid paying, and others will give you the cold shoulder outright.
Regardless of what makes accounts receivable difficult to collect on, you’ll still need them to appeal to customers with good intentions. If you can’t get rid of accounts receivable altogether, then you need to find a way of making them easier to collect on.
How You Can Improve
There are many ways to improve collection of accounts receivable, much of which has to do with setting very clear expectations. When you clearly illustrate what a customer is expected to do, it makes it harder for them to wiggle around and deflect blame. It also makes it easier for them to know what to do, as they won’t have to spend time to figure that out for themselves.
Here are some of the best ways to better collect from accounts receivable:
Revise Your AR Policy
Revising your accounts receivable policy is probably the most influential thing you can do. If you don’t already have one in place, you can set up some sort of discount for customers if they pay early or on time.
The process of revising the policy will also give you a better understanding of what is going wrong. Where are customers getting caught up? Are things unclear? Does this work for my business?
When you release your revised policy, it helps existing customers understand that you are invested and care. It can help make things clear for both existing and new customers, showing that you definitely pay attention to the health of your accounts receivable.
Communicate with Customers
One of the biggest issues with all of society is a lack of effective communication. This is also present in the business world, as customers often times feel like their opinions and concerns go unnoticed.
When it comes to accounts receivable, you need to have an open line of communication with customers so you can explicitly inform them when a payment is due. If you’re operating in good faith to do your best to communicate with your customer, it gives them every opportunity to actually pay.
Communication is another way of showing your customer that you aren’t going to ignore the situation. It is much easier for a customer to feel like they got away without paying if you don’t say anything. If you let them know that you are aware of an overdue balance, it can help persuade them into making the right choice.
Verify Billing Process
In addition to revising your accounts receivable policy, you’ll also want to investigate your billing processes. You’ll want to look at how the billing process actually works, and whether or not it is effective.
Are mistakes being made that cause delay in payment? Are bills accurately being sent out on time? Are invoice amounts correct? Is there a better way of delivering this information?
Ultimately, you want to perfect your billing process so it runs like a well-oiled machine. You want to be able to “set and forget” it, knowing that if anything goes wrong, it must be another part of the process.
Screen Potential Customers
If you don’t already do so, you want to screen the customers you agree to extend accounts receivable to. Credit was designed for the purpose of establishing how trustworthy someone is financially. If someone has poor credit, they might be a cause for concern. If someone has great credit, you’re not likely to run into any payment issues with them.
While it may be costly to request a credit report, it is even more expensive to perform labor or services for someone that is not likely to pay. When these types of customers can often be easily screened out with a check, it quickly becomes a source of frustration considering how avoidable they are.
Chart an Aging Report
Another thing you can to do to keep on top of accounts receivable is to create an aging report. An aging report will look at all accounts receivable with balances on them, and will assign them an age based on when the payment was due.
The longer you wait to try and collect on a balance, the less likely you are to collect on it. If you create an aging report for all of your accounts receivable, you can look at which accounts are still collectable, and which may be better suited for a write-off. This can save you time and money from trying to chase down old balances that aren’t worth it.
Professional Assistance with Accounts Receivable
Collecting on accounts receivable isn’t always easy, but it’s an ugly necessity of operating a business. Allowing a customer to receive a good or service with the understanding that they’ll pay later on is an excellent way of establishing a positive relationship between customer and business. On the other hand, it is a great way for dishonest people to get things from you for free.
Because you can’t go without accounts receivable, you need to find a way to better collect on them. You can do this by revising your accounts receivable policy, clearly and repeatedly communicating with your customers, verifying your billing process, screening any potential customers, and charting an aging report to analyze overdue balances. Use of any combination of these techniques is sure to help reduce future accounts receivable balances!
If you want some reassurance that you’re handling accounts receivable in the best manner possible, you can always consult an accountant. The experts at the Felde CPA Group have several years of rich experience that lets them understand accounts receivable better than anyone! If you want professional, genuinely helpful advice to get the most from your overdue accounts, contact the Felde CPA Group today!