Collections Strategies For Efficient Cash Flow
We try to evade collections as much as possible. Unfortunately, in business, outstanding amounts can negatively affect cash flow and impact your company’s growth. To make things easier, you can try out the following five plans to increase your business’ chances of getting due cash punctually or even earlier than the stipulated deadline. You can also try this bank recovery and collection software to get the job done.
1. Request for advance payment as much as possible
Before embarking on a new deal, make sure that you have sufficient cash to fund it and that your numbers stay green.
One way you can prevent chasing your customers who are prone to deferring overdue payments is to get cash due before the stipulated deadline.
What are the chances that your customer will pay you way before the deadline? This is totally dependent on the trust and rapport between your companies. For some situations, giving minor discounts for earlier payments may encourage companies to pay in advance. Getting payments earlier can put you at ease by lowering the chance of default rate.
It lets you position your money better through other investments and gives you greater financial freedom.
Do request for the biggest possible value of money you can secure before you begin the new job when you are in talks about it. Around half of the total payment amount is the norm in most industries.
Obtaining payments in advance helps to pay for the project’s miscellaneous costs, which will definitely aid in your company’s overall cash flow.
2. Implement a retainer system
Retainer billing requires little to no setup and it is beneficial for both you and your customers. A retainer scheme helps make the process of budgeting more streamlined and allocates your free cash appropriately.
Firstly, calculate the estimated payment amount you will be getting from your higher-valued customers per year. Then, get the monthly amount from the total yearly amount. Provide a list of services these customers utilize from your company annually. Add on another file that indicates what services will be provided for them based on the amount they pay every month. Explicitly state what is not included.
Upon determining the retainer amount:
- For bills that will be repeated per period, implement automated invoice processing
- Bill invoices within five to ten days before the last day of the month
- Include in your construct that you will ACH their bank account on the first day of each month as much as possible, or
- Bill the monthly fee to their credit card for an additional charge
This helps both parties tally their finances more simply. It lowers the billing and collections costs and in turn, cuts down their accounting costs.
3. Appoint a collections owner
A poor collections system will result in avoidable cash flow issues for your company.
Only appoint a receptionist or office manager to manage collections if you have explicitly stated how important this task is and ensure that they have enough time to complete it properly.
Managing collections is often avoided by many, hence it is almost always finished poorly.
It is difficult for a receptionist to make collections calls if he or she has other more urgent tasks to tend to, such as answering customers’ calls. This is one of the more common errors businesses make when they appoint someone who is not willing to do the job and is not given enough time to complete the task correctly. Another main reason is insufficient training for the appointed one which results in inefficient collections calls. All of these add up to collections getting done lower on the list.
One method you can try is to have the salesperson be responsible for the collection system. If they get their money when the company gets its cash due, you will motivate others to ensure your company gets its payments.
4. Streamline collections process
You can utilize the receivables management system in the QuickBooks Online and Funding Gates App to streamline the collection system. For example, GrowthFund uses Funding Gates to ensure timely reminders corresponding to the company’s collection policy.
If a client is delaying payment, it will notify your clients with emails and make voice calls to request for payment. At the beginning of the process, do target those with larger amounts as they are most likely to significantly impact your cash flow forecast.
If all of the emails and calls do not succeed in making your clients pay, Funding Gates will start to email the relevant managers in the company about these nonpayments every week. This will highlight the accounts the managers have to take note of. It shows the number of clients who have received reminder emails or calls, so this ensures that managers are informed early whenever there are signs that a client might make payments late.
When there is insufficient cash flow in the company, most companies tend to split the bills into two categories – “must pay” or “like to pay”. If your company calls when the bill is late by a day, or if the job has severe repercussions such as a late penalty, your bill will belong to the “must pay” category. This would signal to your customer that you need the payment soon.
If you are able to set up this collections process, you will be able to tell your customers that late collections are not a joke. Email them to notify them again five days before the deadline. If by then they have not paid yet, give them a voice call the day before the deadline.
5. Make a voice call to customers at least five days before the bill’s deadline
Most individuals are passive in collecting payments – they wait till 30 days past the deadline and then make a call to the client to notify them. This is not good for your business.
The very first call to your customer should happen within three to five days before the amount is due.
Ensure that you have a solid system to notify them about late payments. If you show your customers that you are keen and genuinely want to help them with their cash flow issues, it will show that collections on your side are no laughing matter too.
On top of that, do have an escalation system in place. This is to help you determine exactly when you should stop services.
Do tell your customers that if the collections are paid late, they will have to pay a mandatory legal charge, which is something both sides would want to avoid.
Although collections are just a part of what you would need to take care of to ensure efficient cash flow, it is still important to manage them properly. Ensure your collections process is as streamlined and efficient as possible so that your cash flow processes function without a hitch.