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Business owners and financial officers of either big or small companies know how important it is to collect payments on time, as it is the driving force of any enterprise. And while a few missed payments occur from time to time, piling unpaid receivables becomes problematic and challenging to resolve.
Often, debt collection and accounts receivable management is the least favourite task of anyone in the finance team resulting in putting it off to the side. But this is a wrong move many don’t realise. Accounts receivables are time-sensitive, and putting your receivables on hold and waiting for your customers to pay you when they can make it hard for any business to recover from poor cash flow, affecting the whole business operations. This literally translates to the aphorism’ Time is money.’
Unpaid invoices may sound simple, but these words create a significant impact on your company’s overall financial health. Thus, timely collection and making it your priority is vital to take control of your accounts receivable and sustain your company. Like many successful businesses, you can take proactive steps in order to improve your collection techniques and ultimately avoid the risk of taking the hit and struggle by making ends meet instead of enjoying a continuous flow of money into your account.
If you or your team find it challenging, laborious, and time-consuming to collect payments, using credit control software can help you with it.
Why is Collecting Payment on Time Important?
Before diving in on the best collection strategies that you can practice in your company, let’s see how late debt collection affects your business if you do not act on it right away.
Collecting payments late decreases your probability of recovering the amount your customers owe you
You see, the longer you allow them to settle their debt gives them the idea that it is okay to not adhere to the agreed date of payment. Unfortunately, coming across difficult customers is unavoidable in the business world, and most of them result in prolonging their debt rather than settling it on time.
Many businesses widely practise pursuing unpaid accounts for between two to three months. This is because it is the time frame where the odds of getting paid are higher. It is vital to keep in mind that time is of the essence, and delaying your collection efforts can cause your company to have low cash flow.
Delays in collection stop you from operating your business efficiently
It is a known fact that low cash flow means you won’t be able to settle your responsibilities, such as paying your employees, covering other payables, and management of goods. Risking these aspects of your business hinders your operation. Worse, it can cause your business to borrow money from others and earn you interest, which can impede your efforts to grow your business due to insufficient funds.
To mitigate these challenges, employing effective financial management tools, including consumer finance software, can help optimize cash flow and reduce the reliance on external borrowing, ensuring a more sustainable and growth-oriented financial strategy.
It eats up your Accounting team’s time
Time management is essential to keep everything in line and ensure that you fulfil all your to-dos on time without compromising other areas of your business. A business without anything to worry about, especially finances, often has a smooth sailing organisation. However, dealing with overdue debts, chasing payments, and dealing with customers over financial stability issues can slow down everything.
Your accounting team is not exempted from the long list of responsibilities. Like you, all members have a crucial role to play in the company’s growth. Delaying other areas of responsibility and getting stuck in contacting customers for outstanding invoices can destroy their workflow.
Best Payment Collection Techniques For Your Business
Being smart about your collection technique tows a lot of benefits to your company. Aside from ditching the stressful and laborious task of ensuring steady inflows, this will significantly affect your organisation’s financial health creating a domino effect on the overall wellness of your company. Below are the best collection techniques that work:
Maintain communication with your customers
Establishing constant and good communication with your customers has a psychological and emotional effect that impacts their purchase and right payment decisions, benefiting your cash flow.
Often, when you cause a negative experience to the customers, it causes them to avoid dealing with you. But, if you provide them with a friendly and positive experience, which is often established through communication, it positively affects their overall satisfaction. This makes them settle their payment with you on time — or makes them feel safe to communicate with you if they need more time to pay. Nonetheless, this saves you from dealing with prolonged settlement of invoices and having quick recovery of resources.
Improve your invoice management and use reliable tools
Although small businesses are still practising traditional invoicing and still do things manually, using reliable tools like credit control software enables you to do more with less effort. This benefits your business from errors that usually come with the conventional way of managing your finances and offers automated invoices that allow you to send reminders to your customers timely and efficiently, encouraging them to pay on time.
Aside from saving you time and effort, accounting software offers tailored collections with effective accounts receivable automation benefits, easy generation of reports and analytics, as well as streamlining your communication with customers.
Shorten your payment terms
Offering payment terms to your customers is a great marketing strategy. However, this involves risks such as dealing with stale invoices. To ensure that your clients pay you on time, be firm with your payment policies.
While it is common for small enterprises to give at least 30 days for their customers to settle their invoices, and large corporations give up to 90-days payment terms, keep in mind that this can cause your company to run out of funds. So, instead of jeopardising your cash reserve or borrowing from others, always opt to implement stricter payment terms.
An effective way of encouraging your debtors to settle their financial responsibility is to shorten their payment time frame. This way, they won’t have much wiggle room to delay paying you or else they will run a risk of incurring interest which can add up to their expenses.
Take Away
Consistently collecting payments is your business’s lifeline because it lets you carry on with your operations and allows you to make future plans without worrying about your financial capabilities. Although there are small bumps along the way, like coming across debtors that settle their payments late, keep in mind that your business is not helpless. You can always implement strategies to ensure that late payments don’t jeopardise your cash flow.
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