5 Practical Tips to Speed Up Your Accounts Receivable Turnaround
Counting Money - Photo by Alexander Grey on Unsplash
Getting paid on time is essential for keeping your business running smoothly. A solid accounts receivable (A/R) process ensures a healthy cash flow and reduces the headaches that come with late payments. Here are some straightforward and effective strategies to help you improve your A/R turnaround time.
1. Send Invoices Right Away
The sooner you invoice, the sooner you get paid. Delaying invoicing can create unnecessary gaps in your cash flow. If you wait to send an invoice after completing a job or delivering a product, you're also waiting longer to see that money in your account.
Practical Tip:
Use accounting software to send invoices immediately after a sale or service. These systems also offer features to automate invoicing, so there's no lag between completing the work and sending the bill.
2. Double-Check for Accuracy
Errors on an invoice can cause disputes, which ultimately delays payment. Whether it's an incorrect amount or missing information, any mistake might give your customer a reason to hold off on paying you. Making sure your invoices are accurate and clear reduces the chance of problems.
Examples of How to Improve Accuracy:
Include detailed descriptions of products or services.
Double-check calculations, tax details, and discounts.
Set up your accounting software to auto-fill certain details and minimize manual entry errors.
Practical Tip:
Have a simple checklist to review each invoice before sending it. Better yet, designate a team member to review them for accuracy to avoid any issues before they reach your client.
3. Make It Easy to Pay
The easier it is for your clients to pay you, the faster you'll get paid. When customers have multiple payment options, they're less likely to delay. Giving them convenient ways to pay—whether it’s online or via a mobile app—can make all the difference.
Examples:
Offer options like credit card payments, ACH transfers, or digital payments through platforms like PayPal or Stripe.
Use systems that allow one-click payments directly from the invoice email.
Statistics: Businesses that accept online payments typically get paid 40% faster than those that rely on traditional methods like checks.
Practical Tip:
Use invoicing software that integrates payment options. Many accounting platforms let clients click and pay directly from the invoice email, making the process hassle-free.
4. Have a Plan for Late Payments
Even with the best processes, some clients might still pay late. This is why having a plan in place to handle overdue invoices is key. A well-thought-out collections strategy helps you stay on top of unpaid bills and keep your cash flow stable.
What a Simple Collections Process Might Look Like:
Clear Payment Terms: Always set and communicate your payment terms upfront, and include them on every invoice (e.g., payment due in 30 days).
Reminder System: Set up automatic reminders for due and overdue payments.
Collection Steps: For example, send a friendly reminder email 3 days after the due date, follow up with a phone call at 7 days late, and escalate to a more formal notice after 15 days.
Practical Tip:
Take advantage of automated reminders in your accounting software. Customize the messages to sound professional but firm, and schedule follow-ups to make sure you stay on top of unpaid invoices.
5. Track Your A/R Regularly
To improve your accounts receivable process, you need to stay on top of key metrics. By tracking how quickly your customers pay and which invoices are overdue, you can make better decisions about when and how to follow up.
Key Metrics to Monitor:
Days Sales Outstanding (DSO): This metric tells you the average number of days it takes to get paid after a sale. Lowering your DSO means getting paid faster.
Aging Report: This report breaks down overdue invoices by how long they’ve been unpaid, which helps you prioritize follow-ups.
Practical Tip:
Run a regular A/R aging report in your accounting software and check for overdue accounts. Use this data to tweak your collections process and make sure you're following up on the most critical accounts.
Why a Strong Accounts Receivable Process Matters
A well-organized accounts receivable process does more than just help you get paid on time. It improves your overall cash flow, which keeps your business running smoothly—whether it’s paying your employees, reinvesting in growth, or simply covering your day-to-day expenses.
By invoicing quickly, making payments easy, and staying on top of overdue accounts, you can create a streamlined A/R process that supports your business’s long-term success.
