AR Management Best Practices: Pursuit

As discussed in our previous post, preventing invoices from becoming past due is the best scenario for any accounts receivable department. Now, let’s delve into the best practices for AR Management to ensure on-time payments. On-time payment improves cash flow, optimizes resources, and facilitates working relationships.  Regrettably, this is not always going to happen.  There will be those who don’t pay on time, who forget to pay on time, or worse, don’t have the ability to pay on time.  This is when the pursuit phase of accounts receivable comes in.

When your customers don’t pay their invoices on time, they’re basically treating your business as a bank. And if you don’t charge late fees, then they’re getting an interest-free loan.  Worse yet, studies show that collection rates drop precipitously the longer they’re left outstanding.  In fact, when they’re 90+ days past due, collection rates are just 74% according to Entrepreneur. This can present a problem to your cash flow, potentially impeding your business operations in so many ways.  To help ensure speedy recovery of outstanding invoices, let’s look at pursuit and make sure your business has a solid plan in place to recover the money it’s due.   

Having a standardized, business-centric process should be the key focus in your pursuit program.  While no business ever wants to be in a position to have to chase down past due bills, as it requires time and money your business may not be able to allocate, there are ways to handle it in a way that can increase the likelihood of payment while ensuring a solid working relationship going forward.  

Following are four important steps your business can take to make the pursuit phase of your AR program run as smoothly as possible: 

• Past Due Invoice Templates: Should an invoice become past due, you’ll need to send a reminder to the other party indicating a change in status. Here, simplicity should be your guide.  Clearly indicate which invoice is past due (e.g., Design Invoice #5360) and the amount due using attention-getting text such as red font or highlighting while providing an easy process for issuing payment.  If you accept electronic payment or wire, both of which will avoid the possible delays of sending paper checks, make those instructions clear and easy to find. If you only accept paper payment, it’s best to also provide a self-addressed stamped envelope so the debtor can simply drop the letter in the mailbox.
• Past Due Letter Templates: Communication during the invoice pursuit process is essential, but also a delicate dance.  The best thing to do is have materials drafted ahead of time so it’s just “plug and play.” No one wants to have to recreate the wheel nor do you necessarily have the time to run it through internal review, because any potential delays can influence your cash situation. 

As you create the letters to accompany the invoices, keep in mind that each letter should reflect a greater degree of urgency as the invoice gets further and further past due. This should be in the subject line of the letter, where you also indicate how far past due the invoice is or other steps for remediation. Write things like “Invoice #13306 – 30 days past due” or “Payment Plan for Invoice #5516.” Also make sure to provide contact information – including a name, phone number and email – so the debtor can reach out with any questions. 

• Settlement Negotiations: If you’re 90+ days past the deadline and still haven’t received payment, but you don’t want to send it to collections, you may want to try settlement negotiations. In this situation, representatives from your business and the debtor determine exactly how much and when they can pay. This typically involves a back-and-forth discussion to reach a figure both parties are comfortable with.  But like any negotiations, make sure you have a plan in place for how much you’re willing to settle for because, once you agree, there’s really no going back.  Some things to consider as you embark on settlement negotiations include an analysis of your working capital position, your financial reserves and your other accounts receivables.  An understanding of these and other factors will help you get a fuller picture on what’s a reasonable amount to accept in settlement negotiations. 
• Offering Payment Plans Prior to Collections:  One other option is to offer a payment plan, where you simply break out the amount due into smaller chunks to be paid off over an agreed upon period of time.  This way, the debtor is able to pay off their obligation and you’re able to avoid the issues associated with engaging collections.  Similar to settlement negotiations, determine what works best for your business before beginning discussions with the debtor.  Only then should you reach out to them to discuss the potential of a payment plan.  Once you come to an agreement with the debtor on the key issues of how much each payment will be and the duration of the plan, make sure to document the discussion and share it with them.  Then submit a formal communication, along with payment dates and amounts, and ensure you have proof that it’s been agreed to by both parties.  This will not only provide clear instructions but also supporting documentation should legal proceedings become necessary.

As you look for a partner who can help you with your invoice recovery, consider reaching out to MakeGood. We have rebooted revenue recovery with streamlined processes, offering early payment discounts using motivational language, penalizing slow payers, and ensuring a modern payment experience. We can have you up and running on your 90-day free trial in just a matter of hours.

In our final post in this series, we’ll look at placement and how to work with collections agencies to recover a past due invoice.