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Cash in—collecting payments

Cash in—collecting payments

Posted on:  , 
Author: ATB Business & Agriculture

Setting up an invoicing system might be the single most important aspect of starting a successful business. Proper invoices are essential to running your everyday affairs efficiently, and ensuring that you are paid on time is vital to maximizing your cash flow.

Without the right structure in place, you will more than likely run into multiple roadblocks. Whether it’s difficulty in collecting receivables, disorganized billing records, or problematic tracking of old invoices—improperly planned invoicing all but guarantees serious ramifications down the line.

How to improve your system

Luckily, finding a top-notch invoicing solution is easier than ever. Besides popular software platforms, many businesses successfully choose to use spreadsheets for record keeping of invoices. There are also a host of high quality Microsoft Word invoice templates available online—many of which are free. Be sure to use an invoice template that includes a box for an invoice number and a date so that you can easily track each invoice.

Nonetheless, collecting receivables can be a stressful, lengthy ordeal if not precisely set up with the needs of your business and your customers in mind. Here are some simple pointers to help you improve your invoicing system.

  • Invoice promptly

    It is paramount to the livelihood of your business that your customers pay on time. In order to encourage timely payment, you need to consistently invoice immediately after services have been rendered. Invoicing quarterly or at the end of the month effectively forces you to hold your customer’s debt.

  • Allow customers to pay by credit card

    Decide on the terms of a billing system and stick with it. This will help maintain good relationships with your customers, avoid misunderstandings, and encourage customers to pay on time. Be sure to let your customers pay by credit card and debit card, if possible, as multiple payment options will increase customer satisfaction.

  • Rewarding early payment

    A popular method for encouraging customers to pay on time is to offer an early payment reward or discount. Some businesses choose to offer incentives such as a small percentage off the pre-tax cost if the invoice is paid within seven business days. Other businesses charge late fees if invoices are not paid within a set time period. Note that all late fees need to be clearly outlined on your invoice so that your customers are aware of such penalties.

  • Follow up as soon as an account is due and unpaid

    It might feel daunting to deal with unpaid accounts; however, it’s something you will need to face. Having a robust set of guidelines in place is the best way to deal with such situations. Consider having collection letter templates set up in advance, and create a predetermined series of windows when each letter will be sent.

  • Think it through

    It’s also important that you document everything. Record each past due notice you send, each response from the customer, and all other relevant information. Consider crafting a friendly letter for the first past due notice, a polite but firm letter for the second notice, a more direct letter for the third notice. The fourth communication would be a formal letter demanding payment within 10 business days or legal action will begin.

    If you find yourself in a situation where you need to send a final letter informing the client of pending legal action, be prepared to follow through.