6 Steps to Improve A/R Performance & Help You Get Paid On Time

Everything we do in both business and in life is a series of steps. If you want to advance in your career you will need to develop a plan, work hard, network often, etc. and if you want clean, glossy hair you should lather, rinse, and repeat right? No matter the size of a goal, completing the necessary steps is a key to reaching it. So, if your goal is to consistently get paid on time by your customers, here are 6 steps that we recommend for any business:


1. Defend yourself- every time you extend credit terms to a customer you are taking a risk that you won’t be paid on time or at all, but there is a huge difference between taking a good risk and a bad one. there are many ways to decipher between the two but you must do more than just have customers fill out credit applications and check into their credit scores and reports; you must continually monitor customer credit worthiness which is where many companies fall short. Each time a customer’s requests a change in their account; weather its extended terms, and increase in their limit, etc. ask them to fill out another credit application so you have the necessary information you need to make sure they are not asking due to financial problems.  Another reason companies end up taking on too much risk is because they skip checking credit references! How a company looks on paper is one thing, but how they have behaved with their other suppliers is completely different- here are a few more credit application best practices to consider.

Another important thing to remember is that the credit reports you purchase to make important credit decisons could be wrong. Recent studies show that one in every five Americans have a mistake on their credit report- that’s a 20% error-rate! (2013 study by the Federal Trade Commission).  While this may not speak directly to the accuracy of business credit reports, this makes you wonder, what must the error rate be on the business credit side? It’s safe to assume that it is at least 20% if not more since business credit is far more complicated than consumer credit. What does this mean to you? Well, if you rely solely on credit reports for your customer credit information, there is a good chance you’ll be working with inaccurate data. While credit reports are still a good tool, always take the information provided with a grain of salt and use information from as many sources as possible before making your final decision such as a credit application, trade references, and historical customer payment patterns if you’ve worked with the customer in the past.

2. Always know when invoices are due- what is due and when? This is essentially the most important question you can ask as the person responsible for collecting outstanding invoices. With this being the most critical aspect of your job, you should have instant access to this information and be able to quickly pull together reports to show those invoices beyond terms, those approaching terms, largest outstanding invoices, etc. Most companies cannot do this because they rely on processes and technology that is not sophisticated enough to tell them this information. This is especially true for those companies that rely on spreadsheets which are historically inefficient and prone to data entry error. Accounts receivable management software is designed to pull all of the information you need into one centralized location so you always know the status of your oustanding invoices and what needs to be done to collect them. Learn more about other common accounts receivable tools and strategies that companies rely on that simply don’t work and why.

3. Communicate often – communication, or a lack of it, is usually the main reason companies do not get paid on time. How often do you get in touch with your customers today? if you’re like most companies it’s only when the due date for an invoice has passed and by then it’s too late- the invoice is already late, your cash flow is already slowing, and the customer may have already forgotten about the invoice. To ensure this doesn’t happen, you should get in touch with a customer soon after the invoice is sent to confirm it has arrived and there are no problems that will delay payment. From there, it is considered a best practice to remind them about the upcoming due date every 10-15 days depending on the amount on the invoice and the risk involved. This could be by sending an email, a letter, a statement, or by picking up the phone. The tough part though is keeping up with the many invoices and related communications your company sends out each month.

For example, sending an email is not just sending an email- you need to decide which customers are due for a touch from you, gather all of the information related to their invoice, track down their contact information, review noted from previous conversations, write the email, and then send it. it doesn’t seem like much but when you are trying to manage a large number of invoices and have to search for information in spreadsheets, your ERP/accounting system, and old emails, it can become a very large and time consuming task. If that sounds all too familiar, consider a system that is designed to not only centralize all of that information, but one that can save email templates specific to accounts, and automate emails with a PDF attachment of the invoice in question- all based on rules you’ve defined.  You can learn best practices for accounts receivable communication, download email templates and call scripts, and learn more about automating accounts receivable communications here.

4. Warn your customers- what will happen when your customers pay late? Not all companies choose to have late payment penalties, but you might want to. You may want to warn customers that their late payment could result in one of the following:

  • A late fee of x% of the invoice value.
  • Future services will be restricted until the invoice is paid in full.
  • Credit limits will be reduced in the future.
  • Credit terms will be denied in the future.
  • And others

Always be careful when it comes to making these statements since, if these types of consequences are not normal for your industry, you could scare customers off.

5. Enforce the consequences – did you tell your customer at some point that there would be a consequence for late payment? If so, be sure to follow through. Just like your kids, customers can identify when threats are empty and that will lead to more late payments and a loss of credibility on your end.

6. Modify what needs to change one of the most important things you can do as you work toward any goal is to measure your progress and make modifications when/where they are necessary. Are your current processes and strategies helping you get closer to your goal? If not, you may want to consider the way you approach invoice collection, change customer credit terms, and even adjust customer credit limits.

It can be a lot of work if you do not set yourself up for success, but if you can follow the steps above, it will not be such a lofty goal to regularly get paid on time. One of the best things you can do to ensure long-term success is to put all of these steps into an action plan and policy to guide you as you work through each step. We’ve put together a guide to help you get that done, click below to get started.


get paid on time

by Jeanne Lee

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