Who doesn’t want to have money coming in sooner? While there are generally accepted practices within any industry, changes in the following 10 areas could help quicken payment.
1. Invoice quickly. The sooner you send an invoice, the sooner you get paid. If you can automate your invoices, you can deliver them more quickly. Emailing invoices is better than mailing them because you don’t have to spend time and money to print and stuff them, stamp envelopes and take them to the post office.
2. Track what needs to be invoiced. The last thing you want is for the work to be completed but not invoiced. Use your software to help you accomplish this task.
-If you invoice off an estimate, is there an estimated versus invoiced report?
-If you use sales or work orders, look for an open sales or work order report.
-If you invoice for time and materials, is there a report or feature that shows you a list of all customers with unbilled time and expense?
3. Change your terms. If your terms are net 30, can you change them to net 15? Can you make your terms due on receipt for new customers?
4. Make prepayments a part of your business. Look at all recurring monthly and annual payments in your business. You might have opted to pay some bills on quarterly or annual cycles to get a reduced rate. You can do the same thing with your customers: Offer a reduced rate if they prepay for the contract or season. If you’re starting a project, ask for a deposit upfront—even if it’s only a one-day project—to help ensure a commitment from the customer in addition to any signed agreement. It doesn’t need to be for the full amount, but it gives you cash to offset payroll and other expenses.
5. Make it easy to pay you. Eliminate some of your customers’ excuses by:
-Using ACH. Customers can pay you online or give you check information by phone.
-Accepting credit cards. Statistically, customers will spend more if they can use a credit card. It would be great if they spent more with you.
-Automating payments so you can skip collections. If you accept credit cards, you can charge clients’ cards each month, quarter or whatever your payment frequency is.
6. Monitor your accounts receivable (A/R). Most accounting software will have a few different reports you can view. My favorites are the A/R aging summary and open invoices.
7. Send reminders before the invoice is due. Some programs—such as Bill & Pay, which I use—will automatically send those notices for you. Reports that can help you see who needs to be reminded include an open invoice report or aging report. Your software might have additional tools to help.
8. Send reminders just after the invoice is due. Again you might use some type of aging report or open invoice report or perhaps some other feature available in your accounting software.
9. Monitor collections. Most accounting software programs will have some type of collection report. You might even find a software tool dedicated to collections.
10. Shift to more fast-paying customers. Determine if your software has an average days to pay report, which helps you sort through who’s slow and fast. Depending on how the report is organized, you might decide to export the report to Excel so you can sort on the average days to pay instead of the customer. Such a report can be an eye-opener. Slowly, or maybe not so slowly, drop your slow-paying customers or change their terms. Prepayments and shorter terms—such as due on receipt or net 10 or 15—should improve the average days to pay.
Hopefully, collections isn’t a problem for your company, but if it is, these suggestions should help you get paid more quickly.
Muir is a green industry accounting expert with Muir & Associates. Reach her via muirassoc.com.
