How to make sure your business collects on sales

One of the most frustrating parts of owning a business is dealing with overdue payments. Cash flow is crucial to a business’s growth, so when you’re not able to collect payments for sales, your business suffers. An inefficient process for accounts receivable can be a failing point for many businesses. To avoid this misstep, it’s best to have systems and plans in place so that nonpayment doesn’t become a problem — and you’re prepared if it does. Consider these best practices for your business’s accounts receivable.

Create a customized payment collection system

The goal of a payment collection system is to minimize the number of payments made after their due dates. An ambiguous system with inconsistent timelines might confuse your customers about your payment expectations. The best way to ensure that you get paid on time is by creating an efficient billing procedure that everyone in your company follows and that you clearly communicate to your customers. Setting upfront expectations can make all the difference for your cash flow. Your accounts receivable can include exceptions for some customers, but make sure those are understood by everyone involved. Set guidelines for:

• Billing periods and invoice dates
• Standardized recordkeeping procedures that capture all critical information
• Detailed policies for credit, including how to determine which customers qualify 

Because invoicing errors are a leading cause of collection problems, try to build a system that ensures accuracy, such as including an approval process for outgoing invoices. It’s also important that you revisit these processes and procedures as you scale to ensure that they’re still working for your business and its cash flow. Regularly reviewing your accounts receivable process also builds accountability and helps catch errors or inefficiencies early.

Build automation into your process

Some of the best accounts receivable processes have automation woven in. Most invoicing software integrates with or includes its own electronic payment processing system, , making it simple for your customers to pay and for your business to collect payments. This software also records payments, further cutting down on the number of manual tasks that are time-consuming for your company and can result in errors. These automated systems can send emails to remind customers about upcoming payment dates, thank them for completing a payment and let them know a payment is overdue.

While automation is key to collecting on sales more efficiently — and provides a smoother overall receivables operation — you will likely still need some human intervention. When a customer fails to make a payment, it’s important for an account executive to segment those accounts into the appropriate strategy for communicating with them moving forward.

Think about how your communication might be different between a repeat offender and a major client with its first late payment. With automation, you can create different communication tiers for your customers. Consider having staff familiar with the accounts make those calls. You can also design the automation to prompt employees to write personalized email messages or include generic messaging sent at regular intervals after the invoice date.

Consider your customer experience

Take a critical look at your accounts receivable process, and consider it from your customers’ point of view. Is it easy for them to find and complete all necessary forms and documents? Are you providing more than one payment option? Do you offer any payment plans or early payment discounts?

All of these are good questions to be asking yourself. Each business and industry will have its own problems and solutions. For example, if your company has customers who are making recurring payments, consider ways to allow them to make automated payments.

It’s also important to look at what your competitors are doing. Shifts in industry standards sometimes happen at a gradual pace, and your customers may be shopping elsewhere for the ease and flexibility of payment that other companies offer.

Have a contingency plan for unpaid invoices

No matter how hard you try to prevent them, overdue invoices happen. Plan for these moments with a policy that clearly defines when and how to contact customers, protocol for documentation and policies for late fees. Be sure to communicate these to your customers during the initial purchase agreement.

Reach out to your customers to find out why payments haven’t been made, and respectfully follow up on these conversations. Make sure to document phone conversations by taking notes or recording the calls. Late-payment emails should begin the first day that a payment is late and clearly communicate the overdue balance and how to pay. Keep in mind that communication moving forward should be consistent, but not too frequent. Calling a customer and leaving a voicemail every day would not lead to the best possible customer service relationship.  

Your contingency plan may also outline what to do when customers don’t pay despite your best efforts. At a certain threshold, either you or a manager at your company will be responsible for deciding the next steps. These may include writing off the unpaid invoice, involving a collection agency or taking legal action, such as bringing the issue to small claims court or filing a lawsuit. Hopefully, things won’t get to that point, but if they do, you will be in a better position having spent time thinking through what your business can afford to do before it happens.

Get even more strategic with your cash flow

Accounts receivable is just one area of your business that can improve your cash flow. Speak with a business banker to discuss which products can help you keep more cash on hand and further grow your business.