Overdue invoices can be a costly and time-consuming problem for your business. Collecting payments is important — but it’s just as important that you have a streamlined collections process that doesn’t eat away at your team’s time.

An efficient and effective collections process can help you maintain good relationships with clients, improve your business’s cash flow, and cut timely tasks that consume your accounts receivable team.

How to Improve Your Accounts Receivable Process?

Follow these tips to improve accounts receivable collections in your business.

1. Systemize Invoicing and Payment

Before you take action to collect a late payment, you have to be able to confirm the customer received your invoice and give them a clear and easy way to pay.

Electronic billing and payment options (credit card, ACH, etc.) streamline this process in real-time and prevent errors and complications that would keep your customers from paying.

Automating your invoicing with software can also help you send an invoice as soon as possible after delivering services or products. This ensures customers aren’t surprised by your bills and are prepared to pay them.

2. Develop a New Collection Strategy

If you’re using a reactionary or ad hoc collections strategy, take some time to review and systematize it. Consistent collection procedures will improve internal and external communications, and help you respond more quickly to past due accounts.

You might segment your customers and develop collection strategies for each segment based on their size and payment behavior. 

For example, large customers are likely to require high-touch communication from your account management team, while small customers may be fine with automated messages to resolve simple issues. Or you could adjust your terms for late payers so they have to pay upfront before you deliver services, thus avoiding any kind of bad debt.

We recommend you take an approach that combines automation with customization:

1. Process reminders based on client balances, not invoices, so clients with multiple invoices have a consolidated view of what they owe you at any time and aren’t overwhelmed by due dates and reminders.

2. Automate the first late-payment reminder with a personalized email that goes to the customer the first day payment is late.

3. Send later reminders more frequently with individual, manual emails that address a customer’s unique circumstances.

Having trouble writing effective email reminders to improve your debt collection? Have a look at our free templates.

3. Ensure a Quality Customer Experience

Over-automation is a quick way to annoy your customers and turn them away. Avoid setting up multiple automated payment reminders with form emails.

Instead of unpersonalized automation, use a receivable management tool that systematizes your process to save you time internally, but personalizes workflows to give customers a one-on-one experience.

Personalizing communications gives you the opportunity to communicate directly with your customers, so you can determine what’s causing the non-payment and keep a good customer relationship. That should drive how you proceed with collections, not a rigid, automated process.

For example:

• If the problem is with the billing process, like sending the invoice to the wrong contact or missing required information, you can quickly correct the issue and update your systems to the correct process in the future.

• If the problem is technical, like the customer isn’t able to pay through your payment processor, you can give them a new method to pay and ensure that’s included with their bill in the future.

• If they’re delaying payment because of poor service or issues with the product, communicate with your sales and customer service (or business development) teams to more clearly understand the client’s experience and how you can remedy the problem.

• If they’re delaying payment because of cash flow problems, offer a payment plan and adjust their payment terms and billing process in the future to accommodate their business concerns.

4. Align Your Team on AR Collection

Make sure your wider business team understands collecting payments is not a support function, but actually a vital part of the business relationship you have with your customers. Collaboration is key to optimize your accounts receivables collection process.

As such, your accounts receivable collections process should involve more than just your AR team. Keep all client-facing teams, including sales and finance, in the loop to ensure consistent communication with clients and make sure you have a clear picture of the client’s experience with your product or service.

Depending on the reasons for delinquency, the sales team might be able to shed some light on customer expectations, so you can ensure your service and billing are consistent with what the sales team promised. Keeping in close communication with your finance team ensures you have all the information you need on top of payment history to prioritize actions in your collection process.

Keeping everyone on the same page makes your collections process more efficient, saving your company time and avoiding past due invoices. And keeping all communications in a central place helps avoid redundant tasks and cuts your chances for costly mistakes.

Are you having trouble being paid in a timely manner? Have a look at our free guide with tips to get paid on time!

5. Prioritize Your Collection Efforts

In your new collections process, prioritize accounts based on client balances, not individual invoices. Look at your key AR performance metrics by client to segment them based on easiest and most difficult to collect. This will help you get paid in a timely manner.

These metrics can help you prioritize clients in collections:

• Aging report: Just like your DSO (days sales outstanding) can tell you the average amount of time your company takes to collect payment overall (in number of days), you can use individual client balances to spot delinquent accounts to focus on in your collection efforts. This metric can help you determine which actions might be most effective with which clients. The longer a balance remains overdue, the harder it’ll be to collect, so you might use this metric to determine when to send debts to a collection agency. It can also help you prioritize quick follow up with the least delinquent clients.

• Average Payment Delay: At the client level, this metric can help you spot repeated problem clients. Clients with a higher Average Payment Delay take longer to pay overdue balances. Spotting these early can help you customize the client experience to reduce late payment in the future. Through upfront billing, payment plans, or sending reminders when invoices are still outstanding, you can set a more proactive collections plan for that account.

• Aging reports per account manager: Look at aging client balances segmented by account manager to help you identify any issues elsewhere in the pipeline. For example, if there’s an issue in the sales process with a particular AM, you can catch it and fix it before you build up several delinquent accounts under that rep.

6. Offer Discounts and Payment Plans

You can avoid late payments and time-consuming collections processes by making it easier for clients to pay on time by offering convenient payment methods.

Create early-payment discounts as an incentive for clients to pay early.

You can also offer payment plans for clients with consistently poor cash flow, setting up a systematic way to collect payments without a disruption collection process.

7. Use a Collections Agency as a Last Resort

You want to avoid sending debts to a collections agency if you can when dealing with unpaid invoices because this move will almost certainly sour your relationship with a client. When a client has just one payment overdue or even consistently pays a few days overdue, a collections agency is probably unnecessary.

Collection agency fees are pretty costly, too — up to 25% or 50% of the debt owed. You’re better off if you can work out an arrangement directly with the client and collect on the full payment.

If you reach a point where you do have to use an agency, make the client aware of it before you transfer the debt. At this point, they’ve likely been unresponsive, but a notification of debt going into collections might motivate them to finally settle the debt with you directly.

Summary

Accounts receivable collections can be a costly and time-consuming process for your AR team. Systematizing invoicing and payment with the right tools and communication can significantly decrease the time you spend on these tasks and improve DSO. Good news is, different collection methods exist and it’s likely you’ll find one that fits your need!

Aggressive and impersonal dunning strategies, like incessant automated payment reminders and collections agencies, can damage relationships with your clients. A more effective process combines automation with personalization to save you time and maintain client relationships.

At Upflow, we provide solutions to help you create a streamlined and personalized collections process that saves your team time. 

Through our A/R system, you can set up automatic, personalized reminders to send to customers when electronic invoices are overdue. Plus, let them pay you via wire transfer, direct debit, credit or debit card — online, through an instant or scheduled payment, so they can settle up right away.

Upflow acts like a CRM for your invoices, tracking the right KPIs, and sharing relevant information with your sales and finance teams through custom dashboards and tasks.

Through Upflow’s centralized dashboards and insights, you can keep all teams on the same page to monitor the business’s cash flow and financial projections.

Review your collections process regularly to weed out inefficiencies and find opportunities to adjust the process to work for both you and your clients.