5 Tips for Increasing Your Accounts Receivable Collections

Key Podcast Highlights

What Is the Average Accounts Receivables Timeframe?

• The average timeframe is 45 to 60 days.

What Are 5 Tips for Increasing Collections of Your Accounts Receivables?

• Check credit before you go into a deal or commit to a larger sale.
• Take a deposit upfront.
• Allow credit cards. These cards charge fees but a credit card for a new customer gives you your payment.
• Leverage technology. Every good accounting systems has workflows and reminders. You can assign them to certain customers to send emails before their invoice is due.
• Consider factoring. This is where you sell an invoice to a company and then they do the collection.

Transcript

The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

You’re listening to the Small Biz Ahead podcast, brought to you by The Hartford.

Our Sponsor

This podcast is brought to you by The Hartford. When the unexpected strikes, The Hartford strikes back for over 1 million small business customers with property, liability, and workers compensation insurance. Check out The Hartford’s small business insurance at TheHartford.com.

Gene (00:02):

Hey everybody, it’s Gene Marks. Happy to have you here and welcome to another episode of the Hartford Small Biz Ahead podcast. Today I wanna talk about collecting money. Obviously, the economy is still a little bit slow. A lot of my clients are still running around battling to get money in from their customers in a short period of time. The average days outstanding according to some recent surveys, can range anywhere from 45 to 60 days on average. So, you’re sending out an invoice and expecting payment in 30 days, and that’s great but it’s not the norm. A lot of people, particularly big companies, seem to take advantage even if they’re smaller customers when it comes to paying invoices. So let me offer you five ways to help you increase your collections of your accounts receivables.

Gene (00:53):

This is what I am seeing out there in the market now. So I’ve got these five ways… you ready? Here we go. Number one, check credit before you actually go into a deal or before you commit to a larger sale. I know you kind of lick your chops when you see something like that out there. It’s very, very important to use one of the major credit services that are out there. Dun and Bradstreet, Experian, a few of the others, to check a customer’s credit, to make sure that you are not selling them more than you want to take responsibility for, and to make sure that their credit is good. And, you’ll get an idea of how long that they pay. Even if you know upfront that a customer pays normally 40 to 45 days, you can adjust for that.

Gene (01:34):

It doesn’t mean you walk away from the sale, but do credit checks of new customers, particularly for bigger deals. You wanna make sure that you do that in advance before you go into it. Take that extra step. It will save you a lot of headaches in the end. Number two, if you can, take a deposit upfront or get as much money as you can upfront as possible. Now, I run a service firm. We sell technology services, and honestly, for the past 20 years or so, we just have been selling blocks of time, which basically means if somebody wants to do work with us, they have to purchase prepay for a block of time. Our minimum block is like four hours, so it’s not that much, but we get the money in the bank and then we charge our time against that block of time in 15 minute increments.

Gene (02:24):

And when that time is used up, we send a report to our clients and they can review it, and then they can buy another block of time at that point, selling a block of time is not that unusual, by the way. Law firms do it. Accounting firms do it. You pay in advance for your insurance, don’t you? When you buy an airfare ticket, you’re paying in advance before you fly, right? So, this is not a new concept, although a lot of businesses seem to, they push back from doing that. There’s no need to do that. And listen, if you can’t sell a block of time or enough in advance, can you do something? If you’re doing a larger job, can you take a deposit upfront? I mean, come on. Anybody in the construction and the contracting industry know that when they’re doing a project, they’ll take a third upfront, a third halfway through the job, and the other third at the end.

Gene (03:09):

And that last third at the end, is usually their profit, which is fair enough. Because if they don’t do the job in time, then maybe their profits should suffer. But by taking money upfront, at least you can cover some of your costs going down the line. And that protects you in case a receivable goes bad. Number three, take credit cards. If you don’t do it, I get it. I know they charge fees anywhere from two and a half to 4% depending on where you are. But a credit card, particularly for a new customer, gives you your payment. You get the money in your bank. Now, you might get that money less, those fees. Well, I’m not saying you do it for everybody. Maybe do it just for new customers until you become comfortable with them, and then maybe you can revert them to paying some other way.

Gene (03:56):

The other thing to keep in mind is that even if you have those credit card fees, you could have a policy for a new customer that you’re gonna bill those fees through to them, at least for the first couple of orders. Or if you have credit card fees in your business, because you have a lot of credit card transactions, try spreading those fees across all of your products. That may be having a nominal price increase to cover those credit card fees. In other words, you can do things to cover those credit card fees. And by getting money upfront, by using a credit card, that eliminates your receivables situation. So investigate, figure out how to cover those fees and use credit cards. Number four, leverage technology. Every good accounting system nowadays has got workflows and alerts and reminders. Assign them to certain customers orders or invoices that went out so that they may be getting an automatic reminder by email before an invoice is due.

Gene (04:47):

Or at the very least, internally, somebody is getting a reminder that a big invoice is coming due next week. And to proactively reach out to make sure that there’s no problems or anything that would get in the way of payment. Leverage your existing technology to do this. If you have a customer relationship management system, a CRM system, put your customers in there. And for those that might be slower paying, have a process in place where somebody is getting tasks and reminders to follow up, either by email or even phone calls with those customers, and logging in the conversations and taking notes into your CRM system. So you’ve got an audit trail to follow. So leverage technology. And finally, consider factoring. You can Google companies out there that do factoring. Factoring means you sell an invoice to that company, they buy the invoice from you, they take a fee for doing it, but then they do the collection.

Gene (05:41):

If you have a large government customer or somebody that might be overseas, or somebody that’s just a bigger corporation that’s very slow in paying, you can sell that invoice to a factoring company. Again, you’ll pay a fee, but then that factoring company will then go and collect it 90 or 120 days later. Meanwhile, you’ve got the money in the bank. Factoring is a really, really good way for those larger invoices to get payment in sooner rather than later. And yeah, you pay a little bit, but it makes sense to do. So let’s recap. Okay. I’ve given you five ways to increase collections, to collect your receivables faster this year. Okay? Number one, check credit in advance. Don’t do large transactions with people you don’t know. Check their credit first. Make sure that they’re out there and they’re not gonna, they’re gonna be able to pay your invoices when your terms say that they should be paying.

Gene (06:36):

Number two, take money upfront where you can. If you’re a service business, do what I do. And bill, by a block of time, more importantly, or if you’re in the contracting business or any business, even if you’re shipping stuff of a large nature, try and get a deposit upfront before the items get shipped out or the service gets performed. Number three, accept credit cards. Take those fees and figure out how to get them covered. Charge the customer more or spread them among all your customers. But by accepting credit cards, you will get money in the bank that much faster. Number four, leverage technology. Use your accounting system to send automatic email reminders or provide alerts to either your customers or to you guys internally. Or use your CRM system for reminders and tasks and to take notes when you’re following up on slower paying customers.

Gene (07:28):

Use the technology that you have to increase your cash flow and your payments. And finally, for large invoices, particularly to big companies, the governments, maybe international transactions. Consider factoring. Google those factoring firms. Sell them your invoice, pay the fee, but then let them go and collect it. You’ve got the money in the bank. Those are just five ways to help increase your cash flow by collecting your receivables that much quicker. I’ve got other ways as well, and I’ll try and share them in a future episode, but employ these five ways, or at least some of them, and I think it will make a big difference. Hope this helps. My name is Gene Marks, and you have been listening to the Hartford Small Biz Ahead podcast. Hey, if you need any help or advice or tips in running your business, please visit us at SmallBizAhead.com or SBA.thehartford.com. Hope you enjoyed this, this little segment, and hope you got some good information out of it. I’ll be back next week with more info for you to help you run your business. We will see you then. Take care.

Download Our Free eBooks

• Ultimate Guide to Business Credit Cards: The Small Business Owner’s Handbook
• How to Keep Customers Coming Back for More—Customer Retention Strategies
• How to Safeguard Your Small Business From Data Breaches
• 21 Days to Be a More Productive Small Business Owner
• Opportunity Knocks: How to Find—and Pursue—a Business Idea That’s Right for You
• 99 New Small Business Ideas