Any business needs to maintain a favourable accounts receivable turnover ratio to invest in new opportunities and pay fixed and variable costs without delay. During times of economic uncertainly, like in the COVID-19 pandemic, it’s even more essential to receive payments on time.
You need to take multiple steps to improve your payment collection process. Here are some tips that may help:
Establish the Payment Terms Early
Let’s face it. Payment terms aren’t the sexiest part of the conversation with a client. However, it’s a good idea to outline your expectations to avoid issues down the road. Discussing the payment terms early shall also help you gauge your customer’s level of professionalism and expectations with your products and services.
Sign a Contract
It’s a good idea to document the terms and conditions of your business relationship with a detailed contract. A contract shall also come in handy in case there are disputes later.
Incentivize Timely Payments
There are several ways you can incentivize your client to pay on time:
- Offer early payment bonuses such as discounts and additional products and services.
- Set strict late-payment fees.
Follow Good Invoicing Practices
Send your invoices on time with polite payment reminders. You can use accounting tools to make this task less labour-intensive. Please also add a concise yet warm thank you note after every payment to develop a good working relationship with your customer.
You should also add electronic payment options to your invoice. While a customer that writes and mails a cheque may change their mind, a client that pays electronically may not have the time to do so.
Always maintain a friendly but professional tone with your customer. However, don’t get too friendly, or your clients may feel comfortable testing your limits. While your patience will be tested when dealing with delinquent customers, you must maintain an uncompromising but professional attitude.
Remember, threats and aggression are almost always counterproductive. The last thing you want is to give your customer another excuse not to pay you.
Offer a Payment Plan
During the current economic crisis due to the COVID-19 pandemic, many clients have cash flow issues. Negotiate with reputable clients that are facing temporary financial setbacks if you can. You can offer them a payment plan by dividing their payment into more manageable installments. Some late-paying customers simply need an extension to manage their debts.
You can also consider forgoing the late payment fees for valuable clients that need assistance. OF course, you must update the contract to reflect the new terms and conditions. If a challenging client needs to rearrange payment terms, then only accept cash on delivery for future orders.
Partner with the Right Professionals
A cost-effective way to enhance your accounts receivable is to partner with a debt collection agency that offers consumer collection solutions to businesses. Unlike a full-time collections team, your in-house unit may not have the experience, training, or time to chase late-paying customers.
If your business is struggling to collect payments on time, then you have several ways to improve your collections process. With the proper measures and professional help, you can turn those unpaid invoices into cash much faster.