How to Minimize Billing Bottlenecks

Managing accounts receivable can be challenging, especially in an uncertain economy. To keep your company financially fit, it’s a good idea to occasionally revisit your billing and collections processes to ensure they’re as efficient and effective as possible. Consider these helpful tips.

Resolve billing issues quickly 

The quality of your products or services, and the efficiency of order fulfillment and distribution processes, can significantly impact collections. When an order arrives damaged, late or not at all, the customer has an excuse to question or not pay your invoice. Other mistakes include incorrectly billing a customer or failing to deliver on promised discounts or special offers.

Make sure you resolve billing mistakes quickly and ask customers to pay any portion of the bill they’re not disputing. Once the matter has been resolved and the product or service has been delivered, ask the customer to pay the remainder of the bill. Depending on the circumstances, you also may consider asking the customer to sign off on the matter by making a note on the final invoice. Doing so will help protect you from potential future claims.

A lengthy cycle time for resolving billing disputes can have ripple effects on finance and accounting processes, such as reporting and forecasting. For instance, if you prepare your first quarter financial statements with numerous outstanding adjustments, management won’t be able to evaluate first quarter results until the adjustments are made. Delays in financial reporting can lead to missed business opportunities and postpone detection of impending financial problems.

Send timely invoices

If you haven’t already done so, implement an automated collection system that generates invoices when work is complete, flags problem accounts and produces useful financial reports. Consider sending invoices electronically and enabling customers to pay online. You can still send statements out monthly as a routine reminder of outstanding balances.

Delays in invoicing can impair collection efforts. Familiarize yourself with industry norms before setting payment schedules (whether they’re on 30-, 45- or 60-day cycles). If your most important or largest customers have their own payment schedules, be sure to set them up in your system.

It’s also important to regularly verify account information to ensure invoices and statements are accurate and they get into the right hands. Set clear standards and expectations with customers — both verbally and in writing — about your credit policy, including pricing, delivery and payment terms.

Consider rewards for early payment and penalties for delays

Despite your best efforts, you’re still likely to encounter slow-paying customers. Here are some ideas to encourage timely payments:

• Request payment up front with deposits or service retainers,
• Reward timely payments with early-payment discounts, and
• Provide incentives to customers that improve their payment practices.

If positive reinforcement isn’t working, consider implementing late-payment penalties. For instance, you could assess fees on past-due accounts. You might also put a credit hold on extremely delinquent accounts or adjust their payment terms to cash on delivery.

Stay connected with high-maintenance customers

Make regular calls and send e-mail reminders to customers who haven’t settled their accounts. If necessary, the manager who works directly with the customer should try to resolve the payment issues with the lead contact at the company — or even the owner. Consider executing a promissory note to prevent the customer from disputing the charges in the future. If your efforts aren’t fruitful, get help from an attorney or collection agency. Keep in mind, though, that third-party fees may consume much of the collected amount.

If an outstanding debt is uncollectible, you can write it off as an ordinary business expense. Be sure to document customers’ promises to pay and your collection efforts, as well as why you believe the debt is worthless.

We can help

Solid billing and collections strategies are integral to a company’s financial health. Contact us for more ideas for improving your company’s approach to accounts receivable.

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Maner Costerisan is here to help you answer any questions that you might have when it comes to your company’s accounts receivable approach.

You can reach us at maner@manercpa.com or call us directly at 517-323-7500.