There are many ways to get into business, but only one way to stay in – you have to get paid. That’s why a good accounts receivable process is critical.
What is an accounts receivable (or trade debtors) process?
The job of accounts receivable is to get money in the door. There are a lot of steps to that process. You need to find customers that pay, bill them correctly, communicate clearly, and lay out enforceable consequences for slow payment.
Here’s your small business guide to accounts receivable management.
1. Don’t do business with just anybody
If you work for businesses, you already know that some are good at paying and some aren’t. It doesn’t have to be a lottery. Do some research before taking them on:
- Run a credit check to find out if they’re regarded as good payers (which you can do through your accounting software).
- Or call someone else who supplies them, and ask if they get paid on time. You’re required to get consent from your prospective customer to do this.
2. Put payment terms in writing (before you start)
Spell out when you’ll be billing your customer, and how much time they’ll have to pay. Point out the consequences of late payment – such as interest, fees or legal action. Get the payment terms signed off before starting work. Don’t leave any room for misunderstandings.
3. Send your invoice quickly
Send your bill straight after the work’s done. It’ll take time for your customer to approve it and pay it, so why not start those wheels turning as soon as you can.
4. Make it easy for customers to pay you
Invoices get paid up to 35% faster when customers are offered convenient payment options like debit card, credit card, services like PayPal, or direct debit.
5. Watch for payment – eagerly
Keep a list of all your invoices and check your bank account regularly for payment. Invoices should stay on your watchlist until they’re paid in full. Knowing what has and hasn’t been paid is absolutely critical to managing your accounts receivable.
6. Have a plan for stragglers in your accounts receivable process
Decide what actions you’ll take when invoices go past due:
- When will you email a reminder? When will you call?
- Will you send a past due invoice or a statement of accounts?
- When will you involve a debt collector?
Learn how to deal with unpaid invoices and write up your own plan of action for overdue accounts. Stick to your policy unless you have a really good reason to be lenient.
7. Make the big calls
Don’t try to handle all your accounts receivable by email. There will be times when you simply have to call. Check they’re happy with the products supplied or work done, let them know they’re overdue, and ask when you can expect payment. Make these types of calls part of your plan for overdue accounts.
8. Make the even bigger calls
Check the payment history of your customers (which should be simple to do on your accounting software). Are some of them always late paying you? Maybe it’s time for a chat. Ask if they’d prefer another payment method.
Or change their payment terms so you’re extending them less credit. You could start asking them for upfront payments, for example. If that doesn’t work, consider letting them go. Picking and choosing good customers is a big part of accounts receivable management.
The number one rule of accounts receivable management
Make sure you have a plan for your debtors. Don’t treat invoices on a case by case basis. Do the same things on the same days for everyone that owes you money. A consistent accounts receivable process will help keep you in business so make sure you have one that:
- makes new customers aware of their obligations to you
- gets invoices out the door as soon as a job is complete, or billing cycle comes around
- sets out the specific actions you’ll take if an invoice is overdue