Does your business have Past Due Accounts?
If you provide a service or ship a product before you get paid, you most likely have a balance in your Accounts Receivable account. If customers pay when their invoice is due, all is right with the world. If they don’t, then your cash flow is tight and your bank balance low.
One of the major causes of business failure is lack of adequate cash reserves.
Here are some tips to help you keep your accounts receivable current and prevent past due accounts.
Granting Credit
When you deliver your service or product before your client pays you, you are in effect their “bank,” granting them credit. Not everyone deserves to be granted credit. Create a system for granting credit.
All customers should complete a credit application requiring pertinent information including bank and credit references, especially if you are billing large amounts of money for your size business. Include your credit policy and have them sign the agreement.
You should also ask for a retainer or deposit prior to starting work or shipping your products. This will smooth your cash flow and reduce your credit risk.
Offer Multiple Payment Options
When a customer is ready to pay their bill, make it easy on them by offering multiple payment options. Perhaps they will pay faster if you take payment by credit cards. Many people have extra money sitting in their PayPal accounts, so that is another payment option. Apple Pay and Android Pay are relatively recent options to consider adding.
You may also want to revisit the credit cards you offer: MasterCard, Visa, and American Express are universal, but many places also take Discover and Diners Club. If you are doing international business, consider JCB (Japan), China UnionPay, and RuPay (India).
Collection Process
Once an unpaid invoice has reached its 90-day mark, the chances of collecting past due accounts are about 50 percent. This means that you will need to put some aggressive collection processes in place prior to the 90-day mark.
If the invoice is due in 30 days, start at the 35- to 40-day mark with a friendly reminder. At 60 days, your customer needs a strong reminder and perhaps a phone call. At 75 days, they need to know what consequences there will be for not paying. Will you report the customer debt to credit agencies? Will you turn the account over to a collection agency?
At 90 days, it’s probably a good idea to make one final collection effort and then turn it over to a collection agency. It might sound too soon, but the odds of collecting something much older go down significantly as time passes.
At any rate, create your own process, and automate it as much as possible. The main thing is to stay on top of it.
Past Due Accounts
From your first engagement with your clients to the last steps in the collection process, there are many cost-effective techniques to avoid past due accounts and the unpleasantness that goes with them for both parties. If past due accounts are an issue in your business, contact us to help you develop and automate this process to increase cash flow in your business.
