If you’re finding it too time-consuming to manually mail out invoices and match payments to invoices, or if you’re finding your DSO (Days Sales Outstanding) keeps increasing while the time and resources required for your accounts receivable (AR) process are constrained, you need to make a change. We’ve put together these seven accounts receivable best practices that can help you collect payments faster while saving time and resources and improving the customer experience.
1. Automate your AR process
If you find your AR team spend too much time sending and tracking invoices, dealing with customers’ inquiries, or chasing customers to collect payments, you need to automate. A good AR automation solution can drive efficiencies in your AR process, reduce human error, and also reduce your DSO. Through effective invoice presentment and management, integration with your ERP system, and by providing an easy-to-navigate payment portal dedicated to your customers, the right AR automation platform will improve the customer experience.
2. Speed up your AR process with discounts and shorter payment terms
Another tip to help improve your payment process is to offer discounts or to shorten your payment terms. Terms such as 2/10, N30 act as a little incentive to help your customers pay faster. Likewise, shortening payment terms means cutting down your common 30-day or 60-day term down to 20 days, ten days, or even require your customers to pay upon receiving the invoice.
3. Have a proper collections plan
Having a strategic collections plan can help you collect smarter, faster and set things right when problems arise. Start with sending out invoices electronically using a platform that tracks if invoices are delivered, opened, and viewed. Make sure you set up automated payment reminders to be sent to your customers a week, three days, or one day before the due date, depending on your terms. Having a portal where you can communicate directly with customers and record customer responses is also essential.
4. Have a firm credit policy
Not all customers are created equally — having a dashboard that tracks customer credit history to make sure that they have been making payments on time guarantees you a better chance of collecting payments faster. Your credit approval process may vary depending on your customer profiles, but make sure to regularly review your credit approval process and have your credit policy be known to all of your customers, especially if they are in a high-growth industry or are experiencing an economic crisis.
5. Have different payment options that cater to your customers’ needs
Customers may experience frustration or annoyance if you don’t accommodate their regular or favorite payment options, especially if they have worked with companies that cater to such needs before. Instead of just accepting checks, you can consider ACH/EFT (electronic funds transfer), and credit cards. Always ensure you’re putting your customer at the center of your AR process.
6. Create a billing dispute resolution process
Sometimes you may find yourself having to deal with a dispute from a customer. In order to keep yourself prepared when that occasion arises, you should create a billing dispute resolution process and have a platform in place where customers can easily raise issues, at an invoice level and line-item level. This will not only help streamline the process but also help improve customers’ overall satisfaction level as their queries or complaints are always dealt with professionally and proficiently.
7. Track your AR KPIs
Metrics are vital to your business’ performance, as they help to tell whether you’re going in the right direction with your business decisions. Regular reporting on your AR KPIs can help you see where your company currently stands in comparison to your competitors or other companies of the same scope, as well as helping you compare your current business performance to last month’s, last quarter’s, or last year’s performance. Having a platform that automatically tracks and displays AR metrics allows your team more time to focus on the decision making and result analysis process.
This is by no means a finite list of accounts receivable best practices, but we definitely recommend starting with these in order to not only speed up your cash collection process, but to streamline your entire AR process and improve your customers’ experience as well. At the end of the day, the easier it is for your customers to pay, the faster you can get paid.