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How to collect bills more effectively

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Good cash flow management is critical to building a strong business. And collecting effectively on your accounts receivable is a key element in generating healthy cash flow.

When you tolerate overdue bills, you are effectively financing your customers and hurting your working capital ratio. A shortage of working capital could threaten the very survival of your business.

Here are a few tips to help you collect bills faster and deal with late payers.

Be clear

No sale is final until you have received payment. Therefore, you should communicate payment terms to your clients and make sure there’s no room for misinterpretation. Make invoices as clear and detailed as possible, including not only your terms but penalty interest for late payments.

Don’t wait

The sooner your customer has the bill, the sooner you will be paid. Ideally, you should arrange to be paid at the time of sale. If you are invoicing, make sure the bill goes to the customer as soon as the goods or services are delivered.

Explore mobile billing technology

For many types of businesses, mobile devices, such as smartphones or tablets, can be a boon for speeding up bill collection. That’s because they allow you to collect or issue an invoice on the spot.

Track outstanding bills

As part of a cash flow planner, you should maintain a payment calendar. It shows what accounts are outstanding and for how many days. This helps you keep track of cash coming into your business and follow up with late payers.

Cultivate relationships

Know who’s handling accounts payable for your customers and keep in touch with them. Make sure that invoices go to the right person in the right department. This is especially true when working with big companies, where your invoice might get lost in the shuffle.

When issuing the first invoice, call to confirm that the client has received it. After 30 days, follow-up and ask if there is anything you can do to speed things up.

Pursue late bills diligently

Don’t be shy about chasing overdue debts and don’t wait. Contact slow-paying customers and ask them to pay. As entrepreneur and author Barry Moltz puts it, “You are not a bank… It is your money and if you are to pay your own bills, you need to collect it.”

But be flexible

Your long-term, A-list clients might hit a bad patch from time to time. Work with your client on a payment plan to address both the situation and your needs.

Offer early-payment discounts

Good customer and supplier relationships can help you wring more cash out of your business. For example, you can turn sales into dollars faster by offering discounts to customers who pay early. You would be surprised at how much of a difference a 2% discount can make in bringing cash in quickly.

Divide big bills into chunks

To reduce your risk and improve your working capital position, consider progressive invoicing for big orders. For example, you can ask for a deposit at the time the order is made and then a percentage of the payment at various agreed upon milestones.

Get help

If your collection efforts are not working, consider bringing in the professionals, depending on how much money is at stake. You can hire a collection agency or a lawyer to help recover what you’re owed.


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