How to Manage Receivables and Get Paid Faster

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June 25, 2019
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3 min article

Unless you are in the retail or hospitality industry, chances are your clients do not pay you in full right away. Managing accounts receivable is an inevitably part your business process, so you want to manage it effectively.  

It can be more of an art than a science, and different industries have different ways to handle the collection process. Nonetheless, there are best practices you can follow to speed up payment collection and keep your company’s cash flow positive. 

 

Perform background research

Pick and choose your clients wisely before you agree to a job. You can learn a lot about a potential client by visiting their webpage or reviewing their social media profile. If possible, run a credit check and request for references from others who they have done business with. Remember, you don’t have to work with everyone, especially if someone is known for paying late.

 

Ask for upfront payment

It is best to request for partial payments upfront. It reduces the risk of collection, and a deposit shows good faith that your client will pay the remaining balance once the job is complete. It’ll also alleviate the strain on cash flow as you will incur costs while performing the job.   

 

Establish payment terms 

Communicate with your client at the start, so both parties have a mutual understanding on the payment terms. Clearly lay out any late payment fees to encourage the client to pay in full by the due date. Put your payment terms in writing, so there isn’t any confusion. The key is to communicate at the beginning of the job and remind the client along the way. 

 

Offer convenient payment methods

You can’t force your clients to pay, but you can offer convenient payment methods to encourage payments. You can configure your cloud accounting system by adding a payment service to your online invoice and your customer can pay it with just a few clicks. When your customer views it online, they can use the ‘Pay now’ button to pay you securely using one of your chosen payment services such as MasterCard, Visa, PayPal, and Apple Pay. Ultimately, the easier it is for the customer to pay you, the faster you will get paid.

 

Review Accounts Receivable Aging Report 

This is the most important step in managing accounts receivable. It shows the detail of every client who owes you, how much they owe, and how long the balances have been outstanding for. By issuing an invoice through the cloud accounting system, the Accounts Receivable Aging Report will be updated accurately in real-time. You should review the report on a regular basis, at minimum monthly, but ideally weekly to ensure nothing slips through the cracks.

 

Have a plan to deal with outstanding invoices 

Begin by sending an email. Or, you can leverage the cloud accounting technology and send automated payment reminders for overdue invoices. If that doesn’t work, make a phone call. Be polite and be respectful. Ask your client if they received your invoice. If not, send the invoice again. Also, ask whether they are satisfied with your work. If they are not happy with the work, this could be the cause for delayed payment.

 

Send statement of account 

This lets your client know that an invoice or multiple invoices have not been paid and are past the due date. A statement of account is a summary of all the outstanding invoices a client has and serves as a reminder to make payment. You can easily prepare and send the statement if the invoice was initially sent via the cloud accounting system. 

 

Last resort 

At some point, you need to stop working with the client until they pay your invoice. If a balance has been outstanding for an extended period of time and the client is slow to respond to your reminders, you can consider using a collection agency whose job is to go after unpaid invoices. They’ll take a cut for the money they collect. If the outstanding balance is substantial, you may even consider hiring a lawyer and take legal actions. If all else fails, let the client go and move on. Record any unpaid invoices as lost income and claim the tax back.

Learn more about managing accounts receivable in The Complete Guide to Cloud Invoicing
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