Donna Reade

QuickBooks Online Consulting & Bookkeeping

Your Small Business Has Overdue Accounts? Try These 5 Tips To Collect

Money owing from customers in the form of accounts receivable is one of the biggest contributors to your company’s cash flow. While business success hinges on having positive cash flow activity, the money that flows into your business can’t really be counted as income until it becomes cash-in-hand.

No company can continue to operate if it consistently pays out more than it takes in, and it’s the ability to generate and use cash that allows your business to:

• Stay on top of its debts
• Enjoy regular growth
• Maintain flexibility in the face of financial emergencies and expansion opportunities
• Get approved for new credit
• Attract additional customers with better credit terms

Lack of integrity aside, there are any number of reasons why a customer might fail to pay their invoices on time:
• smaller companies may be short-staffed and disorganized in their approach to paperwork
• bigger companies may have trouble streamlining their large volume of administrative duties
• companies of all sizes may experience negative cash flow due to a lack of proper budgeting or an inefficiency in collecting their own accounts receivable

Staying current with your invoicing, monitoring the status of your outstanding accounts at least weekly, and knowing when to enlist outside help are just some of the habits that will help to keep your company’s cash flow moving smoothly.

Here are five valuable tips for ramping up the success of your accounts receivable collections:
1. Design and enforce a plan for following up on overdue accounts at regular, pre-established intervals – for example, when invoices are 7 days past due, 15 days past due, 30 days past due, and 45 days past due.

2. Issue an initial reminder letter or email, followed by a phone call – for best results, your follow-up schedule should take advantage of a variety of communication channels, beginning with email, then moving on to telephone and certified letter mail.

3. Offset a failure to collect with alternative payment options – when a valuable client has fallen on temporary hard times, consider offering to take installment payments for an outstanding balance, or to accept a reduced amount as payment in full.

4. Mail out a certified payment demand letter – an official letter from your company’s lawyer threatening legal action will often be enough to encourage a consistently negligent client to prioritize the payment of your invoices. But don’t be afraid to hire a collection agency if all else fails – recovering partial payment for a bill is better than receiving no payment at all.

5. Be persistent, but know when to quit – successful accounts receivable management requires dedication and a willingness to be persistent. Just the same, there may eventually come a point when investing additional time and resources into collecting from a delinquent client is no longer worth the cost.