Even in Accounts Receivable, an ounce of prevention is worth a pound of cure

Cash flow management is critical when it comes to the success or failure of any business.  In fact, according to a U.S. Bank study, more than 4 out of 5 businesses (82%) fail because of poor cash management. Slow payers, write-offs from unpaid invoices and even just the personnel or financial constraints of accounts receivable (AR) management can significantly impact a business’s cash flow situation and its ability to succeed. This is why having a well-integrated, structured and proactive AR program is critical for any business.

But what exactly does this mean and what does it entail? 

The best accounts receivable programs are ideally broken up into three stages: prevention, pursuit and placement.  Prevention is what it sounds like – doing everything you can to prevent invoices from becoming “past due” – be it 30, 60 or 90 days, or whatever your payment terms are. Pursuit is the internal process of working with partners to secure payment or the development of a payment program that works for all parties involved.  And finally, there’s Placement. While collections is the last option, placement is when invoices are handed over to a firm that specializes in collections, having them work on your behalf to (hopefully) secure money due to you.  As the first of our three-part blog series, we’re going to discuss the key elements of prevention in your accounts receivable program and why each one of them matters.  

Accounts receivable, in an ideal world, is a seamless process. You issue the invoice with clear payment terms and that invoice is paid according to those terms. But as we all know, things don’t always go according to plan.  

According to an economic report from Sage, late payments cost small- and mid-sized businesses (SMBs) as much as $3 trillion globally. Furthermore, the study notes that up to 10% of invoices are either never paid or paid so late that businesses end up writing them off as bad debt. Late payment can end up impacting your business in a number of unexpected ways. The same study notes that over 30% of SMBs experience or expect to experience negative impacts from late payments. These negative impacts can include things like problems with company investments, supplier payment and payroll itself. This is where prevention can make all the difference. 

Following are some of the key preventative steps to help minimize delinquent payment and the impact they can have on your business:  

• Use an accounts receivable automation software – The more automated your AR process is, the easier it is to facilitate on-time payment. With automation software that seamlessly integrates with platforms like QuickBooks Online, you can simplify data entry, set up one-touch invoice issuance, streamline payment and automate follow up. This can save countless hours on invoice creation, not to mention significantly reduce errors associated with invoice issuance and all elements of reconciliation.  
• Set up accounts receivable “Best Practices” – Consistency is critical when it comes to getting paid. Whether it’s payment periods, penalties for late payment or even how/what you communicate with payers, doing it the same way every time simplifies your AR efforts.  So make sure you have “Best Practices” documented as well as shared across team members who need this information. Of course, most important of all, make sure you adhere to these practices. 
• Make adjustments that make sense – Over time, you may realize that the processes you have in place may need to evolve to facilitate prevention or placement. This could be a function of a growing business, changing needs of customers or evolving financial needs. So don’t think your AR processes need to be set in stone. Periodically revisit processes and make sure they work best not just for your business, but for those you do business with.

Prioritizing prevention in your AR efforts is crucial.  No business owner wants to focus on dealing with slow paying accounts or worse, write-offs and the potential impact they can have on business operations and expansion. So staying ahead of these potential pitfalls is imperative. This is why MakeGood rebooted revenue recovery with streamlined processes, offering early payment discounts using motivational language, penalizing slow payers, and ensuring a modern payment experience.

So if your business is looking for an innovative approach to prevent past due accounts or to easily pursue those that are past due, reach out to MakeGood today.  We can have you up and running on your 90-day free trial in just a matter of hours.

In our next post, we’re going to look at pursuit, and consider the best ways to leverage internal resources to facilitate and streamline payment.