How do I make accounts receivable faster?

Accounts Receivable (AR) are anxiety-inducing for many small business owners – and understandably so. Awaiting payment for your products and services can place a real strain on your cash flow.

Thankfully, there are several ways you can improve your Accounts Receivable Turnover (ART) to help protect your assets and facilitate your long-term success – and we’ve unpacked them just for you.

If you’re looking to boost your cash flow and minimise the risk of late payments, here are five effective methods to improve your ART:

Improve your invoices

Efficient invoicing is one of the most effective ways to improve your ART. Why? Because the sooner you send your invoices, the sooner you can get paid. With that in mind, here are five fundamental steps to improving your invoicing:

Invoice immediately

send your invoice(s) as soon as you’ve delivered your products/services. It will allow your client to pay sooner whilst ensuring you remain on top of your invoices.

Be accurate

mistakes cause delays. Ensure your invoices are both clear and correct by including all necessary details.

Send regular reminders

To make sure your clients don’t forget your invoices by sending them consistent reminders.

Implement late fees

Incentivise customers to pay on time by enforcing late fees and penalties for unpaid invoices.

Offer payment options

Make it easier for your clients to pay their invoices by offering them a selection of payment methods/portals to suit their varying needs.

Shorten your payment terms

As we know, your payment terms specify how long your customer has to pay their outstanding invoice. So, if you want to make your accountants receivable faster, simply shorten your payment terms!

If your current payment terms are net-60, trial a shorter payment window like net-30 or even net-15. By doing so, you can improve your cash flow and relieve some of the anxiety induced by long payment windows.

However, it’s also important to note that shorter payment windows can negatively impact your sales if your customers are cash-flow sensitive. Therefore, to avoid losing clients to competitors, you must ensure your payment terms are always relative to the amount you charge (and your wider industry).

Alternatively, if you aren’t in a position to adjust your current payment terms, try diversifying your client base. By taking on some smaller clients, you’ll be able to implement shorter payment terms for your lower value jobs, which will help increase your cash flow whilst you await your longer-term payments.

Automate your admin tasks

Cloud-based software is the key to automating your admin tasks. But what does that have to do with increasing your ART? By digitising your finances, you’re able to save time, reduce errors and ultimately speed up your payment processes.

Companies like Quickbooks and Xero can automate lower value tasks like replicating invoices and sending your customer’s payment reminders to improve efficiency – saving you both time and money.

What’s more, they also provide tracking software that enables you to access your financial data anytime, anywhere. As a result, you can utilise this information to calculate and monitor your ART and identify any clients or complications that negatively impact your cash flow.

Offer discounts

Discounts are a brilliant way to incentivise your clients to pay their invoices early – not to mention, they’re mutually beneficial.

By offering reduced rates, not only are you improving your cash flow, but you’re also reducing the risk of late payments. In turn, you’re able to save a significant amount of time and money otherwise wasted on chasing invoices – meaning these discounts practically pay for themselves.

So, if you want to get paid quicker, make sure to include early deadlines and discounts in your invoices. It’s truly a win-win situation.

Prevent late payments

Implementing new cash flow strategies is a great way to improve your ART. However, they alone cannot eradicate the damage done by late payments. Therefore, it’s crucial to have structures in place to prevent overdue or unpaid invoices.

Credit applications are one way of ensuring your customers are reliable and creditworthy. They provide you with all the necessary information you need to determine whether or not you feel comfortable extending credit. As a result, you’re able to form a reliable client base and minimise the risk of unpaid invoices.

Alternatively, deposits are a fantastic way to increase cash flow and protect your assets. Not only do they provide you with working capital, but they also ensure your clients are serious about their investment(s).

Although these structures don’t necessarily make your accounts receivable any faster, they do provide additional protection against unpaid invoices, which are just as (if not more) important to address.

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