Top 3 strategies for business owners to get paid quicker each month
Is your cash flow stagnated due to an over-lenient credit policy? When your customers don’t pay you on time, your business suffers, and you may have trouble paying bills or payroll. Before you consider layoffs to kick start the cash flow, reevaluate your credit policy.
For many industries, extending credit is the cost of doing business, but it is a risky proposition, one which requires a calculated and well-enforced policy on your part. So here are a few ideas to help you get paid quicker each month and close the cash flow loopholes:
Idea #1: Review your credit policy. Do you have a standard policy written down? Is your current policy too lenient and allowing your customers to take advantage? While staying competitive requires you to know your competitions’ credit policies, be careful not to undermine your policy with too lenient terms just to attract new customers. You want to make it as easy as possible for your customers to buy from you while limiting risk of lost receivables and cash flow.
Idea #2: Standardize the credit application process. The application should collect contact info, business alias, tax identification number, social security numbers, and bank and industry references from businesses that previously extended them credit. This info, however, doesn’t do you any good if you just file it away. Always verify the information with credit reporting agencies (such as Equifax, Experian, Cortera, On Deck Capital, or Dun & Bradstreet Credibility Corp) and industry references. An established business should be able to supply at least 3 industry references. If not, chances are they will be a potential credit problem for you. Always be proactive and call the references to ask a few questions to help you determine their credit worthiness – how long has the company had an account? How much credit has been extended? Do they pay on time and pay in full? Are they in good standing?
Idea #3: Establish credit terms. Remember, you determine the terms of doing business with your company. If a company wants to buy from you, then they must accept your terms. Establish terms for due dates, deposits and early payment incentives if applicable, late payment penalties, and collection and legal conditions, and consult a lawyer to make sure your terms are legit.
One step in getting paid on time is making it as easy as possible for your customers to pay by offering various payment methods. You have numerous options including cash, checks, wires, ACH’s, e-payments, and credit cards. While credit cards take a percentage bite out of your receivables, at least your business gets paid, and the credit risk is transferred to the credit card company.
Take advantage of all the A/R functions in your ERP solution. Valuable reports are available to you through your current accounting/ERP system. At least once a week staff should review A/R Aging reports to stay on top of receivables. This enables you and your employees to be more proactive – to schedule call backs, offer payment incentives, check for payments, and so on. If you’re not receiving the information you need, then contact your ERP consultant for assistance or consider replacing your outdated legacy system with an efficient ERP solution.
When it’s time to kick start your cash flow with updated accounting software, Accounting Software Connections can help your business find the best software to solve your cash flow challenges. We’re all dedicated to making sure the client is delighted with our service experience. For more information on ASC, visit our website at www.AccountingSoftwareConnections.com or call us toll free at 855-462-2407.