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Tips for Improving Customer Collection

September 6, 2017

If you perform a service or ship a product before you get paid, then you likely have a balance in your Accounts Receivable account. If customers pay when their invoice is due, all is right with the world. If they don’t, then your cash flow slows down and your bank balance is not as high as it should be. Here are some tips, preventive and supportive, to help keep your accounts receivable current.

Granting Credit

When you deliver your service or product before your client pays, you are in effect their “bank”, granting them credit. Not everyone deserves to be granted credit. Consider running credit checks, especially if you are billing large amounts of money relative to the size of your business.

Prior to starting work or shipping your products, you may also want to ask for a retainer or deposit, especially on first time orders or until a customer establishes a good credit history with your business. This will smooth your cash flow and reduce your credit risk.


Offer Multiple Payment Options

When a customer is ready to pay their bill, make it easy on them by offering multiple payment options. Perhaps they will pay faster if you take payment by credit cards. Many people have extra money sitting in their PayPal accounts, so that is another payment option. Apple Pay and Android Pay are relatively recent options to consider adding.

You may also want to revisit the credit cards you offer: MasterCard, Visa, and American Express are universal, but many places also take Discover and Diners Club. If you are doing international business, consider JCB (Japan), China UnionPay, and RuPay (India).

Many businesses are moving towards electronic payment. If your customer base typically pays in this manner, providing the relevant information on your invoice may speed up the payment process.


Collection Process

Once an unpaid invoice has reached its 90-day mark, the chances of collecting it are about 50 percent. This means that you will need to put some aggressive collection processes in place prior to the 90-day mark.

If the invoice is due in 30 days, start at the 35- to 40-day mark with a friendly reminder. At 60 days, your customer needs a strong reminder and perhaps a phone call. At 75 days, they need to know what consequences there will be for not paying. Will you report the customer debt to credit agencies? Will you turn the account over to a collection agency?

At 90 days, it’s probably a good idea to make one final collection effort and then turn it over to a collection agency. It might sound too soon, but the odds of collecting something much older go down significantly as time passes.

At any rate, create your own process, and automate it as much as possible. The main thing is to stay on top of it. Quick follow up on invoices will also establish a level of expectation with your customers so they keep you on the top of their priority list and not the bottom.


Past Due Accounts

From how you first engage with your clients to the last steps in the collection process, there are many cost-effective techniques to avoid past due accounts and the unpleasantness that goes with them for both parties. If this is an issue in your business, try the ideas above and reach out if you’d like our help.       

About the Author ECS Financial Services Manager, Pam Thomas, is a licensed CPA in the State of Illinois. She started her career in 1995 after graduating from Illinois State University with a Bachelor of Science Degree in Accounting. Pam joined ECS Financial Services in 2014 through a company merger. Pam’s areas of expertise include business consultation, accounting, financial statement compilation engagements, personal and corporate income tax preparation, with a special focus in the area of real estate taxation. In her spare time, Pam enjoys bike riding, reading, and spending time with her husband and two daughters.