If the customer says ‘the check in is in the mail,’ Koon says “we make note of mail date, keep an eye on the customer’s account and, if it’s not received in 7 to 10 days, we call back and approach them a little more aggressively.”
Teamwork and industry tools
Having everyone in your company on the same page is also an important part of the A/R process. Accounting personnel should meet frequently with the sales team to update records, discuss clients, and pinpoint potential problems. “If we find a particular customer is being difficult and we’re having trouble collecting, then we’ll have the sales department contact the company’s supply chain person,” Prues says.
Scotlynn also relies heavily on credit tools when setting up new customers or evaluating existing clients. Credit tools like ratings and scores can shed light on days-to-pay trends and how such trends stack up against industry standards. “If we find [customers] trending in a negative direction, we may reconsider keeping them,” Prues says, “or we may not extend a large amount of credit.”
“The best A/R approach is to have an established credit map or credit policy in place,” shares Rodriguez. “Tools such as Blue Book business reports, ratings, and scores can help in making a sound business decision on either increasing or reducing credit limits. We also determine our A/R collections goals based on cash flow needs and periodically set short- and long-term goals,” she adds.
Does size matter?
Liquidity and pay do not always correspond to size. Jerue strives to have a 30-day customer base, but Koon comments, “It will never happen. Why? Some of our best customers are 40 to 50-day pay and you can set your watch by them. If they say a check is mailed, it has been mailed. They’re smaller in size and depend on prompt payment themselves and so they treat us the same way,” she says.
It can be a different story with larger customers. “You always have one or more invoices that get filed without being paid, or they’re under a stack of 100 other invoices, or they had a missing number or letter,” Koon comments.
But when the customer is called, she notes, the invoice is found and payment is remitted in a few days, in most cases.
“If a customer gets slower and slower about paying for three years in a row, watch out,” Koon warns. In her experience, it usually means the company is “about to close or be closed due to a shortage of funds.”
Other Tips
Offering incentives, such as discounts for early payment of invoices is another tip, as is setting up credit card and online payment methods for the customer’s convenience. By requiring initial deposits, companies can reduce the total amount of credit they need to extend to customers. And, as Rodriguez mentioned, faster billing and invoice generation can help as well.
Better defined credit policies will encourage customers to not delay payments, and increasing the efficiency of collections—some firms use a dedicated team approach—will help speed pay.
