Developing a timely approach to billing and collecting payments from customers is critical to maintaining your company's financial strength. Here are some helpful tips that can shorten your collection cycle and improve your company’s cash flow:

Know Your Customers

Working with people you trust is the most important aspect of collections. When taking on a new customer, you should check that company’s credit rating and payment history. You should also ask for credit references.

Invest in Technology

If poorly organized, collecting from customers can be a time-consuming process. Shop around for computer software that can help you streamline aspects like recurring billing, electronic invoicing and communication with customers. There are many affordable options for accounting software. Ultimately, the right technology can drive revenue to your business. For more information on the kind of software that might be right for your company, read our article, "How to Run a Business from Your Mobile Device."

Establish and Communicate Payment Terms

You need to set up credit policies that will motivate customers to pay promptly and consistently. Those terms should be provided to the customer and agreed upon before services are rendered. Payment terms that are too strict can lower sales, while more lenient policies might slow customer payments. A good rule is to require payment within 30 days. If it fits into your business plan, you can motivate customers to pay you more quickly by offering a small discount (for example, a 2% discount for payment within 10 days). Another alternative is factoring. Many factoring companies will charge less than 2% and buy your invoices daily.

Bill Promptly

The receivables clock starts ticking when you deliver a product or service. For your customer, it starts only after they get an invoice. Waiting a few days to send out invoices slows the process even more. The solution is simple: the sooner you mail invoices, the faster you will get paid.

Create a Process and Stick To It

The ability to consistently follow up with customers about unpaid invoices is critical to your company’s stability. The most effective approach may vary depending on the industry, but most companies follow up with a phone call or email to their customers after 30 days. Other steps in the process can include re-invoicing, late payment penalties and enlisting a collection agency. Establish a collections process that is most effective for your business and remain diligent in executing it.

Don’t Let Receivables Build Up

Accounts receivable may have a dollar value, but they cannot help your company until the customer pays. To ensure you have enough cash to fuel your operations, do not carry too many unpaid receivables on your books. You may also consider factoring as a way to quickly turn those accounts receivable into working cash.

How To Make Customer Collection Calls

No one enjoys making a phone call seeking an overdue payment from a customer. Still, collection calls are a necessary part of doing business. Doing them the right way can solidify your cash flow and help your company meet its own expenses. Developing a technique for handling these calls will help you collect quickly on past-due payments. You should also try to anticipate how a customer will react to your call. Some customers may be apologetic while others can be defensive or angry. Some customers may even try to win your sympathy. Below are some common excuses you can expect from customers on why they have not paid on time, along with suggestions on how to respond. At all times your tone should be courteous and professional. You are not trying to win an argument. You are just trying to get paid.

Customer Excuse #1:

“I didn’t receive your invoice.”

Your Response:

“I’m sorry about that. Let me go over your contact information to make sure it is correct and we can send the invoice out again.” This may be a legitimate reason for nonpayment. Your response shows you are giving the customer the benefit of the doubt. It also tells the customer that you are diligent with your collections and they can expect to receive an invoice soon.

Customer Excuse #2:

“We already cut you a check for that.”

Your Response:

“Good! What day did you mail it? What is the check number and when can we expect to receive it?” This customer excuse can be misleading. Some debtors may cut a check for an invoice, then hold on to that check until they have more cash on hand. Your response requires the customer to confirm whether the check was mailed or not. If it has not been mailed, your next step is to get the customer to commit to a date when they will send you the payment. Let the customer know that you are documenting that commitment and will follow up if it is not met.

Customer Excuse #3:

“Sorry, but we just don’t have the money to pay you.”

Your Response:

“I’m really sorry to hear that. We want to work with you on this. Is there a time when you will be able to pay us?” If a customer confesses to you that they simply cannot pay, express empathy but focus on a pathway to payment. Emphasize that your company wants to find a workable solution for both parties. That might mean breaking the invoice down into smaller payments. A customer may not be able to pay $5,000 at once, but perhaps they can pay $500 a month over 10 months. In some cases you may need to accept less payment than was originally charged. Avoid getting into a dispute and broker a deal that will salvage at least some money for your company.

Customer Excuse #4:

“We have an issue with the amount you charged.”

Your Response:

“Let’s talk about that. I have all the documentation right here in front of me. Do you have a minute to walk through everything that happened on the job?” Be courteous but firm. Let the customer know you have all the information at hand and are knowledgeable about the work performed. If the customer has a legitimate complaint, try to address the concerns. You may even agree to knock some charges off the account. However, let the customer know that a new invoice will be mailed out right away. Encourage your customers to call you at any time with an issue rather than waiting for your company to call them.

Customer Excuse #5:

“You didn’t get our payment? I don’t know what happened. I’m going to have to look into this and get back to you.”

Your Response:

“Okay, when do you think you can get back to me? If it’s easier, I can be sure to call you again tomorrow. Let me know when would be a good time for us to talk.” “Let me get back to you,” is a common dodge that late-paying debtors employ. How you respond to this excuse is critical. Do not settle for a promise to call you back. Make sure that the customer understands that if you do not receive an answer, you will call again tomorrow. In fact, you will be calling the customer every day until the payment issue is resolved.

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