If you’ve been following Funding Gates and TSheets as we’ve been exploring the many ways to streamline your receivables management, you’ve learned everything from improving your decreasing DSO, and even dealing with those overwhelmingly difficult accounts. But as a small business, you might be wondering, how do I apply all this? It’s one thing to read advice, but it’s another to take action on it. So, how do you start to put this advice in action?
1. Organize Your Credit Process – As you well know, having a credit process that allows you to properly vet a customer before doing business with them will help prevent you from doing business with historically late payers. But how do you act on this knowledge? It’s about deciding for yourself how you are best going to evaluate these customers. If you think it’s important to have a credit application, start creating one today. You can use this credit customer approval tool to put together a list of information you want to be true about a customer in order to do business with them. Or, perhaps you want to check a customer’s score before you move forward. Then consider subscribing to Cortera, which is like a Yelp for Business Credit. It’s a great way to easily access credit reports on your customers. No matter how you decide you will evaluate customers, it’s important you make that decision now and immediately start implementing this approval process.
2. Use Technology for Invoicing and Collections – The most important parts of the entire collections process is the initial invoice and the follow-up. However, chances are you are going to be creating quite a few invoices over the years, as well as follow-up communication. That’s why its important you invest in technology for both purposes. Electronically creating and sending invoices will help you save immense amounts of time, avoid errors and have all your customer invoice information in one place. QuickBooks and Xero are two great options for doing this, as they can also serve as your complete accounting package. For businesses sending, say, more than 10 invoices a month, you are also going to want a system that organizes the payment status and collection notes around these invoices. You’ll find simply using the notes function in QuickBooks is not sufficient. As you learned, if you want to get paid faster, then you need to have a structured follow-up process. Therefore, it’s important to find a way to organize this process. Some stick to an Excel Spreadsheet, but a receivables management software might be your best bet. Take the FG Receivables Manager, for example. A CRM for receivables management, the system tracks all collections communication with a customer, allowing you to log call notes, send payment reminders letter and even send a customer to a collection agency with a click of a button. Having a software that can help you streamline the process and enhance your internal systems will make it that much easier to ensure you are sticking to a structured follow-up plan. You’ll definitely notice a difference when your DSO starts shrinking!
3. Create a System for Severe Delinquencies – Part of dealing with your collections is realizing when to tell yourself it’s time to move on (as it is any bad relationship, professional or personal). We always tend to believe the best in people (and we should), but you have to prevent yourself from the temptation of constantly assuming a customer is going to pay, especially when you get into the 90-120+ days age range. Therefore, sit down and write out a system for yourself, a collections code that you pledge to do business by. So much of it depends on your terms, amount of your average sale and previous relationship with a customer. Could it be for every invoice that becomes older than 120 days you send it to a collection agency? Or for invoices older than 90 days, and customers who you haven’t been able to get ahold of, do you use your lawyer to send them a letter? Consider all your options (which you can find here) and put it in writing (even if just for yourself, so you’ll stick the plan). Once you make a decision, you can even put this into your credit application, so customers know you mean business. “Collections Policy” are common on credit apps and work proactively to prevent late payments.
Just remember, if you invoice your customers, it’s important you make receivables management a priority. Tackling the above tasks will help you see an immediate difference in your cash flow. We wish you luck on your quest to get paid faster. It’s been a pleasure teaming up with TSheets to discover and learn more about stellar collections management. If you have any questions, you can find us at http:www.fundinggates.com!