How to set up an efficient cash collection process? – Entrepreneurial Life

- Advertisement -



It can be intimidating to receive and make a cash collection call. If you provide products or services on credit, you create an accounts receivable (AR) and may have to deposit an unpaid balance.

- Advertisement -

Cash collection is an important part of managing the order-to-cash cycle. If your organization doesn’t have a cash collection process, you risk a backlog of unpaid invoices that may not be collectible. Your business may go bankrupt if there is no steady cash flow.

- Advertisement -

To help you avoid further disruptions to your cash flow and business operations, we’ve put together this guide on how to set up an efficient cash collection process.

Understanding the order-to-cash process

- Advertisement -

The order-to-cash process, also known as the customer cycle or AR cycle, is the journey a customer takes with your company from the time they place an order to the time they pay for their order. There are five components to the order to cash process:

Sales & Credit ApplicationOrder Placement & Fulfillment Invoice CollectionCash Application

Before creating a collection process for billed invoices, make sure the first three parts of the order cycle are ironed. Ensure that processes for sales applications are evaluated for proper creditworthiness, orders are entered correctly, and billing is prepared with accurate charges.

cash collection process

If the billing is correct, a collection process will prevent invoices from becoming outstanding and collect money on those invoices that have become past due. A collection process will figure out how customers are notified of due balances and manage payments as they arrive.

Analyze Aging Accounts Receivable

An accounts receivable is an aging report that shows accounts that do not have outstanding balances. These balances will be either current or past due.

Collection of past due invoices is becoming increasingly difficult. Therefore, it is ideal to review aging reports frequently. Once the aging report is reviewed, identify accounts that are nearly due and unpaid and identify accounts that are most recently payable. Assign these accounts to the collection schedule.

You should also review payment trends and identify customers who are more likely to be outstanding. These customers need frequent communication that helps prevent additional payment problems from them.

Near past due customers

Accounts that have not yet become due can be contacted by a friendly email notice to remind your customer that their invoice is due soon. Lead your AR team by determining when these contacts should occur.

An ideal frequency for a customer with an earliest bill due is a reminder five days before the bill is due, two days before the bill is due, and a second reminder on the due date.

new past due customers

If you have an account that just became outstanding, and the customer doesn’t respond to any contact notices before the due date, it’s a good idea to take the contact efforts up a notch. Send another contact notification to let your customer know that the invoice is now due, if there is no response with the payment, a collection call should be made to receive the payment.

If a past outstanding customer continues to ignore contact efforts, your collection effort should become formal. Prepare a notice to send to the customer. These are called Dunning letters. A solicitation letter, also known as a demand letter, is a formal request from a customer for the loan they are due. The letter explains the next steps in your collection process if the debt continues unpaid.

Last due customer more than 30 days

Customers have a normal allotment of thirty days to pay invoices. Accounts that are past 30 days of age require more collection strategy beyond letters and phone calls. You should work with other parts of the organization to help get paid. A seller’s relationship with a customer is effective in receiving payment from a non-paying customer.

If this doesn’t help with the payment, you can go back to other measures such as placing the customer’s account on credit hold or suspending service, if applicable.

collection software implementation

Constant communication is an important part of the cash collection process. Customers may miss out on sly letters that lead to inconsistent messages about your expectations to pay on time.

Accounts receivable workflow tools make it easy for your customers to automate collection notices. This gives your collection team more time to correct errors in billing and other practical items that keep customers from paying.

In addition, you can schedule systemic collection notices, which helps you stay in touch with suspicious accounts and other customers who habitually make late payments.

final thoughts

Because the storage software is cloud-based and secure, it makes reporting on your AR aging easy. It allows collection personnel to easily manage accounts, view balances, and document and pre-schedule contact efforts with customers.

As long as your team is dedicated and you have an efficient AR management program, the cash collection process is bound to work successfully within your organization.



Source link

- Advertisement -

Recent Articles

Related Stories