In business, your cash flow is your livelihood, and anything that disrupts that little river of green should be eliminated immediately.
Similarly, the absence of good accounts receivable (AR) practices—a lack that can seriously damage your revenue stream—must be remedied. Firm, consistent policies have to be adopted if you hope for your business to thrive in today’s economy.
Effective AR practices revolve around more than just taking payments. With AR, you need to build an effective system of clear communication, consistent follow-up, and adaptable policies that will also coordinate to help you ensure earned revenue goes exactly where it should—into your business’s bank accounts.
The following steps will help you build a strong plan for your AR team to live by, one that ensures your business’s cash flow doesn’t get clogged up or redirected somewhere along the way.
- Do your homework. Before you get into an agreement with a client, particularly one that might require a payment arrangement or monthly compensation for services, make sure you know who you’re working with. Check the person or business’s credit, do a little digging into their backgrounds, and generally double check to make sure you’re not getting yourself into trouble by expecting them to ever meet your payment requirements. You do everyone a disservice if you set up a contract or arrangement that the client cannot hope to meet.
- Get it in writing. If you’ve decided the client is worth the time and risk, make sure you have a contract written up that includes reasonable and clearly defined expectations. The contract will also need exact details about the consequences of not meeting contractual obligations. If the client checks out and appears confident they can meet the contractual expectations, then you’ve done your due diligence to ensure that your time and energy will not be wasted. Ultimately, that’s all you can do, and even then it might not work out—which is why you always set up contingency plans for collecting the money that is owed to you.
- Stay on top of payments and clients. As part of the contingency plan I mentioned above, your AR team will need to be in constant communication with all your clients who owe funds to your business, whether it’s simply an upcoming payment or a past due account. Regular invoices, clear phone conversations, text messages, and emails should all be part of your arsenal for working with your clients to ensure that funds are paid on time. While not all of your clients will make payments after you’ve reached out to them, many will respond to a simple reminder of their obligations.
- Don’t be afraid to ditch policies that don’t work. If signing a contract is still getting you a large chunk of clients who are slacking on their obligations, attach a deposit to the initial requirements. If automated payments get a better response in the long run for your contracts, set up an incentive to encourage clients to take that route. Even if it’s a small monetary loss for you, the overall total of bills paid will likely increase enough to make it worth you while. In short, be creative. If something isn’t working or you’re still not getting the results you want, consider making changes, explore effective practices from other organizations, and study your clients’ behaviors for a clue on how to motivate them to make their payments consistently on time.
- Make it as easy as possible to pay. Ultimately, one of the most effective methods of encouraging your cash flow through AR is very simple: make it easy. That means offering a variety of payment methods and options to your clients. It means allowing for online bill pay, paperless statements, and often automated statements in some cases. The majority of your customers aren’t missing their payments because they don’t want to or don’t intend to pay you. The majority either forget or get distracted. Or the method that you are allowing for payments isn’t as simple as they prefer. Accept credit cards, allow for direct transfer, etc. Give them as many options as possible, and you’ll be surprised how much your cash flow opens up.
Money is the marrow of any business, but it still needs the backbone to support its creation and progress throughout your organization. Effective AR strategies are part of that backbone, so don’t neglect them in your money management plan—especially if your past due numbers are adding up. The right adjustments to your AR practices can make a big difference in your company’s overall success.
About the Author – Ashley Choate is a native of Jacksonville, FL where she lives with her son, dog, and three cats. She graduated Magna Cum Laude from Jacksonville University with a BA in English and holds an MAED in Adult Education and Training. She lives for reading and writing, learning and teaching, and figuring out the day-to-day traumas and joys of mommyhood. .