And even though payment methods are much more diversified, with online bill-pay services and mobile transfers, other companies use paper checks and the U.S. postal service to complete their business transactions. All of which translates into time, and time is money.
Shortening the cash collection cycle involves a number of common sense approaches from prompt invoicing and phone calls to reminder letters, and if truly necessary, resorting to onsite customer visits, attorney involvement, collection agencies, or turning to industry service providers like Blue Book Services if unable to collect on products sold or services rendered.
How The Pros Do It
There are many strategies for improving A/R turnover, but there is no one-size-fits-all solution.
Invoicing, terms, and payment options
“To improve average A/R, the company needs to review receivable processes from sales and invoicing to collections,” Rodriguez says. For example, she suggests having a professional-looking invoice and highlighting the invoice number, payment terms, and customer purchase order—and to make sure the customer has agreed to the terms in writing.
“The invoice needs to have accounting contact information on it,” she adds, as some customers get frustrated when they want to process invoices and there is no phone number to call. Of equal importance is mode, and she suggests sending invoices electronically or via email, as well as accepting payment by ACH (automated clearing house) or wire transfer. Creditors can gain five or six days over traditional mail by accepting payments electronically.
Communication and teamwork
Keeping in contact with customers is simple yet effective. Josh Prues, credit manager for Scotlynn Commodities, Inc. in Vittoria, ON says the company has “an open line of communication right from start to finish.” Phone calls and emails are the norm, along with biweekly A/R summaries sent to senior management.
Prues says this proactive, customer-facing approach has been successful. “We’ve improved our A/R turnaround and developed stronger relationships with our customers by dealing with problems as they happen.”
Rodriguez concurs. “Customer satisfaction is priority number one; work on having good relationships with your customers,” she stresses. “Making a call to say ‘hi,’ and following up on the status [of an invoice] is always the best approach.” She also believes weekly statements are an essential step, “since you’ll be able to work on any discrepancy a customer might have, and avoid future short payments and delays.”
John J. Jerue Truck Broker, Inc., headquartered in Lakeland, FL, follows much the same pattern. “It’s important to collect our receivables as quickly as possible to prevent having to use a line of credit,” explains Brenda Koon, accounts receivable and payable manager. “Our basic approach is to start calling at 28 days. Our net is 30 days and this gives us an opportunity to ensure all needed documents were received so payment is not delayed.”
