From properly recording your business expenses to handling payroll or growing your emergency fund, there are many elements to consider when it comes to your enterprise’s financial health. One major issue that can wreak havoc on your company’s finances and overall operations is when your clients or customers don’t pay for your business’s services and/or products in a timely manner. Known as outstanding accounts receivable (A/R), these unpaid invoices can cause you to not be able to buy essentials you need to grow your enterprise.
Waiting on the payments for the goods or services you provided can also create a ton of stress and frustration for you, which can lower your overall morale. That said, try to get ahead of this potential issue by putting a plan in place. Here are just a few helpful tips on ways that you can ensure fast, hassle-free payments for your company’s outstanding A/R.
Offer a discount on early payments
To pique your clients’ interest in paying their invoices much quicker, offer a special discount on early payments. For example, if you own a graphic design business and are on retainer for a number of clients, let them all know that if they pay their invoices for the next month by the 28th of the current month, they can enjoy a 7% “early payment” discount on next month’s services. Yes, you will lose a little money with this tactic, but getting paid in a timely manner is well worth the disruption in your firm that can occur from letting your accounts receivable age for a long time.
If your enterprise sells big-ticket items like a yearly subscription to a database, offer various price points if the total costs are paid in-full by earlier dates. For example, let your customers know before finalizing the sale that an item’s price will be $500 if paid by the 15th of September, $550 if paid by the 15th of October, $600 if paid by the 15th of November, and so forth. The savings potential should definitely entice them into wanting to pay for their items much quicker.
Use “aging buckets” to prioritize certain payments
If you have a number of outstanding A/R balances, it can be stressful to try to get your clients to settle all of them at once. Thus, prioritize the collection based on aging buckets, i.e. unpaid for 30 to 45 days, 46 to 60 days, and 61 to 90 days. Group together the oldest outstanding A/R balances, then sort by total amount by customer from largest to lowest. Then prioritize the largest balances first and make your way down the list. Each day, send a quick email reminder to the clients in one of the “aging buckets” to remind them of their balances due.
This strategy will help you manage everything much easier and make the payment process much more efficient. Rather than frantically sending every single client with an outstanding invoice an email when you finally get the time, this process will ensure that you take a calculated approach in getting the latest amounts owed paid first. The more that outstanding A/R age, the more difficult it can be to keep everything organized and stay on top of your firm’s financial health. You could even start forgetting invoices that are owed, which can lower your overall profits in the end! Thus, use “aging buckets” to streamline the payment process.
Send automated email reminders
Those who haven’t paid their balances for the products or services your business provided may just be very busy and simply forgot that they owe you money — it has nothing to do with them not having the funds to pay what they owe you. Therefore, help remind them of outstanding A/R by sending automated reminders via email of the money owed. This can really help with the management and administrative aspect of collecting outstanding A/R. Send automated emails to clients every week until they pay their invoices.
The emails that you send can be short and very simple — keep them to a few sentences that discuss the amount owed and the product or service your business provided. You can also attach your initial contract, a scanned copy of the written receipt or invoice you had given to your clients, etc. This will help the recipients remember the initial agreements they had with you. Also, try to send these emails on Tuesdays, Wednesdays, or Thursdays — you don’t want to send them on Mondays, because they can get lost in all the other emails sent over the weekend. You also don’t want to send your emails on Fridays, as your clients could be too busy finishing projects before the weekend to read your emails, meaning you won’t get a reply until the next week.
Last resort: Sell the outstanding A/R to a third party
If some of your clients are really lagging on payment and your business needs funds to keep operations running smoothly, you can factor the A/R and quickly collect cash (at a discount) by selling the outstanding balances to a third party company that takes ownership of unpaid invoices. This third party would pay your company for the balance at a discounted rate. Keep in mind that you will lose some money with this process, but it will help ensure that your company has the funds needed to maintain optimal operations.
To wrap it all up
Handling outstanding A/R can be frustrating and very stressful for so many business owners. If your clients or customers owe you money for the goods or services you provided, it can make it difficult for you to pay all of your overhead costs or purchase business equipment you need. Thus, use the above pointers to help ensure much faster, smoother payments for your outstanding A/R. These tactics will help you get your invoices and unpaid customer balances settled so you can focus on what is most important: growing your enterprise.
Check out this blog post for more helpful accounting insights.
