One of the biggest problems many businesses encounter is in collecting outstanding payments (accounts receivable) to keep cash flowing.
While a great number of businesses hire outside billing agencies to go after delinquent accounts, that is not an expedient way to maintain positive cash flow. Not only are you being left without the capital to pay your creditors, but there are often no funds available for reinvesting back into the business. The key to keeping your balance well into the positive is to keep those collections current. Here are a few tips for optimising business payment collections.
Why Factoring Should Be Avoided
When you are in a negative balance and there are no funds available to do anything other than meet payroll, and that it is a struggle, you might be tempted to contract a factoring lender to give you what amounts to a loan for positive cash flow. Remember that the factor charges a fee for going after those delinquent accounts and that is money which could be used to grow your company. Factoring can be a last-ditch effort if you have trouble optimising payment collections from within your company, but a few tweaks in the way you do things should resolve this issue nicely.
Stick to Your Billing Policies Religiously
When conducting a survey on why companies are failing at collecting accounts receivable, Deloitte found that many companies don’t stick religiously to their debt collection policies. Those collection policies might be in place, but are they being followed? What you can do in a situation like this is work with a cloud-based collection platform that operates within specific parameters. In other words, you would be instituting a direct debit collections platform which will not vary from procedure unless a manual override is issued. Direct debit collections solutions from renowned companies like AccessPay can help you automate the direct debit collections process so that you aren’t overwhelmed with trying to keep cash flowing. You will only need to intervene if the program signals you that no payment has been made.
Don’t Give Sales Authority to Override Procedural Terms
If upon investigation you find that your sales team has overridden the direct debit process and then goes on to deferring payments, be aware this is a huge mistake!
Bear in mind that the sales team will often make concessions just to get the customer to “sign on the dotted line.” That may look good on a salesperson’s balance sheet, but if those payments aren’t made timely or even as per company policy, you could be operating at a severe deficit. Sales personnel don’t know what you’ve allocated funds for and it isn’t within their ‘need to know’ job description to do so. What they need to know is that they don’t have the authority to override company policy and that commission they earned may be taken back because the account was written off as “bad debt.” Money must keep flowing and if they are the broken link in the chain, they are keeping the entire machine from operating optimally.
Be Stricter on Customer Credit Criteria
Although you want to grow your customer base with the intention of growing your business, what good does it do to have clients who don’t pay on time or in full? In fact, what good does a customer do your business if you have to spend untold amounts of time, energy, and money tracking down their payments? This eats into your bottom line and is something you can’t afford. Instead of being overjoyed with a new large contract, wait to celebrate until you’ve fully vetted that new account. Run their credit history and run it again. If a company (or private customer) you deal with is listed in the credit bureau, that should send up a red flag there and then.
Your key takeaway here is that you will need to focus on collecting more and borrowing less. Although you can borrow against outstanding invoices, you need to calculate how much of your profits you will lose by doing so. Set up a direct debit collections platform and let the Cloud do the collecting for you. With stricter credit criteria in place and fewer (or no!) employees allowed to override collections criteria, you can quickly be operating in a surplus rather than a negative balance. Wouldn’t that be nice?