Introduction
Shortening your collection cycles is a bit of a misnomer. What you really want to do is to keep customers from becoming very past due so your own company can run efficiently with the assurance of consistent cash flow. We all know you can’t just send an invoice and magically expect every customer to pay in full by the due date, so we need to be proactive. By working to prevent delinquency instead of waiting for it to happen you will shorten overall cycle times, improve cash flow and maintain control over the collection of accounts receivable.
- Communicate Consistently – It’s an obvious first step, but many don’t go all the way. The initial phone call to a past due account should never be an isolated point of communication. Follow-up regularly with email and other phone calls. Use all the contact information the customer has provided – office phone, mobile number, email address, supervisor, etc. – and if there is no response within 24 hours to a voice mail message or email, call again or escalate the matter to your contact’s supervisor.
- Think Ahead – Probably the most common excuse customers give as to why they haven’t paid is that they don’t have a copy of the invoice. Be one step ahead and assume a customer will need an additional copy and send it without waiting to be asked. Even better, use your collection management software to its fullest capabilities by configuring it to automatically send out transaction documents such as invoices or proofs of delivery. And don’t wait for the customer to go past due. Send the invoice copy as a reminder when payment is coming due.
- Set it in Stone – Be clear with your clients and define for them what your payment expectations are as well as your collection procedures. Make sure they understand from day one you are not going to cut them any slack. You should also have them explain to you their payment processing procedures so you can work together to make sure payment is timely. Maybe the customer is paying 30 days from receipt of goods although terms require 30 days from the invoice date. Other customers only cut checks on certain days of the month. Understanding these things allows you to take steps to ensure you get paid at the earliest possible point.
- Call Early, Call Often – When significant dollars are involved, calling before an invoice is past-due is an effective strategy. Since it’s impossible to do this for every single invoice, making a list of those who are likely to pay late and flag their transactions for a proactive call. When an invoice goes overdue call or sends an email within days of the event. Too often when collectors wait to call it sends a message to customers that you tolerate late payments up to a point. Early contact also makes dispute resolution easier.
- It’s Your Responsibility – Above all, don’t lose sight of the fact it is up to you to shorten collection cycle times. The speed, efficiency, and regularity at which you perform follow-up activities are the greatest factors to affect your collection cycle. Getting a promise to pay from a customer is great, but it’s only half the job. Following up until that payment is made is equally necessary. Collection strategies that lay out a plan of attack for delinquent customers need to be constantly scrutinized for improvement opportunities. The relationship with accounts that are consistently delinquent should be addressed to find ways to bring them back into your good graces. Above all, you want clients to understand your collections team works together like a well-oiled machine and is willing to work with them to align processes and make the whole collections and payment process smoother.
What tips can you provide that has helped your company reduce its collection cycles?
