5 Tips to Improve Your Company’s Cash Collections

Best Practices in Working Capital Management

Nolan Bushnell, founder of Atari and the Chuck E. Cheese restaurant chain, was quoted as saying that “[a] sale is a gift to the customer until the money is in the bank.”

Companies often work hard to close the sale and bring in new business, but that is just the beginning of the process. Cash collections can be an uphill battle if your company does not make it a point to have a strong accounts receivable process. To ensure those sales become cash in the bank, consider the following as it relates to your company’s process:

1. Vet new customers.

Once a relationship is established with a prospective client, but prior to an agreement to conduct business, do due diligence on the organization. One of the easiest ways to find out about a company’s payment habits is to obtain a credit report from an agency such as Dun & Bradstreet. This report should provide potential red flags when it comes to collections and financial stability. For a more outside-the-box method, consider reaching out to mutual business acquaintances for insight on how a prospect conducts business and whether they are a viable business partner.

2. Set clear expectations.

From the start, consider how quickly you would like to convert sales to cash and what is reasonable for your customers. There are no rules or regulations stating what payment terms need to be, so don’t be afraid to set net-30 days terms. Slower paying customers often pay more promptly with tighter restrictions. When establishing customer terms, do not hesitate to create incentives. For example, offering a two percent discount for customers who pay within 10 days of a net-30 day term is a great way to boost cash flows. Another option is to offer electronic payments via ACH. If this is established early, it can be extremely useful in increasing cash flow.

3. Create accurate and clear invoices.

Ensure customer data within your accounting system is accurate and develop a policy to ensure that information is reviewed at least annually. If invoices are being sent to an old address or to the wrong point of contact, the collection process will most likely double. Invoices should contain all required information such as payment terms, services, hours billed or quantity sold, proper mailing address, and contact information. A clean invoice will lead to fewer questions and quicker payment. It also does not hurt to learn your customers’ preferences when it comes to invoice payment procedures.

4. Rely on your people. 

Your accounting department should have procedures in place to review the Accounts Receivable Aging report at least monthly, in order to flag potentially delinquent customers. When these customers are identified, employees within the department should be appointed to establish open communication and set expectations. Interactions with delinquent customers should be documented and, depending upon the situation, payment plans may need to be considered. Collection agencies should be a last resort.

5. Think about your cash management tools. 

Consider contacting your bank and utilizing a lockbox where customers can mail checks directly. The bank can immediately deposit the checks to your company’s bank account.

It is almost inevitable that there will be “a few bad apples” when it comes to timely customer payments. But taking steps to stay ahead of them and ensuring your other collections are routine should be at the top of your company’s priority list.

Thomas Yankanich can be reached at Email or 215.441.4600.

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