5 Startup Strategies to Maximize Debt Collection Results
Does your startup have trouble collecting invoice payments on time?
Receiving payment on time is an essential part of managing and predicting your startup’s cash flow. If you don’t keep up with your receivables, you’re putting your startup at risk.
The key is to have a proactive process in place.
In this article, we will show you the five strategies to maximize your debt collection results and to consider when selecting a collection agency. That way, your startup can expedite payments and maintain control over cash flow.
First, what is bad debt?
Bad debt is the money you’re unable to collect from doing a service or delivering goods. Here’s a diagram showing how an invoice becomes a bad debt:
An established and consistent collection process will help you avoid a cash-flow situation. Let's review the ways you can improve cash collections and proactively manage the financial health of your startup:
1. Establish an invoicing process.
An established process clarifies expectations, so your team can stay on the same page.
This Accounts Receivable (AR) collection process should cover credit policies, accepted methods of payment, interest charges, and so on.
Write down the steps in your process. If you’re feeling fancy, maybe even prepare an AR collection manual for your accountant or accounting team. Be sure to create a record of all sales and receipts, have a system in place for generating invoices, and keep close track of account balances, both current and overdue.
2. Include the right information on your invoices.
This might sound basic, but you’d be surprised how many startups fail to provide clear, itemized invoices for their clients. Invoices should include your business name, phone number, billed items, and how and when to pay. You’ll want to make this as clear as possible for your customers, so that they don’t get held up on the details while trying to make payment.
3. Proactively manage your invoices.
Your accounts receivable process should include a regular review of accounts.
This will help you to identify and manage “aging accounts,” namely, those that are past due.
If your client does not meet the payment deadline, you should not wait until the next billing cycle to send out an invoice reminder. Stay on top of your invoicing and send out an immediate reminder!
Having an automatic process to send out customized invoice reminders, based on the age of the past due invoices, will benefit your startup greatly. Implementing this kind of system, dedicated to dealing with those accounts that are 30, 60, 90, or more days past due, will help you to eliminate a lot of manual work and proactively manage the collection process.
4. If late, call and call again.
A simple phone call can be the most effective means of communication and will go a long way towards strengthening your relationship with your customers.
Don’t be discouraged if your customers don’t pick up or call back — call again!
From our years of experience, we know a good customer won’t be annoyed by the calls. Often, they apologize for being late and usually make the payments right away.
5. Use a collection agency.
If you still can’t get customers to pay after phone calls, consider using a collection agency.
The longer an invoice goes without being paid, the less chance you have of it ever being paid. You need help to collect the payments before the opportunities are permanently gone!
Takeaway:
Now that you have learned the five strategies to maximize debt collection results: establish an invoicing process, including the right information on your invoices, and proactively managing your invoices. Finally, if the customers are late, call them, and use a collection agency!
An efficient debt collection process is so critical to your startup’s cash flow and reputation. If you require assistance to troubleshoot your debt collection process, book an appointment with us today! We’re here to help.
If you're considering hiring a debt collection agency, click here to learn the six key considerations when choosing a debt collection agency.
