4 ways to optimize your collections to reduce outstanding payments
1. Regularly check in on AR
Many merchants fall into the habit of letting things slip when it comes to collections. There are a thousand other things to think about, and AR can sometimes fall by the wayside if merchants aren’t proactive. However, payment collections are a crucial aspect of keeping a business running. Without prompt, regular payment, businesses will suffer cash flow issues, which can seriously damage a business, even to the point of shutting their doors. To avoid this pitfall, merchants should regularly check in on the state of their payment collections and look for ways to improve.
2. Clear communication
Sometimes, late payments occur because customers simply aren’t aware of the relevant deadlines and practices. Merchants must clearly spell out their payment policies, including when invoices are due, if late fees apply, and how payment should be made. If any of those pieces are confusing, customers are more likely to make a misstep in the payment process, which ultimately harms the merchant’s bottom line. To reduce outstanding payments, merchants must be abundantly clear about their expectations ahead of time.
3. Assess payment terms
The most common payment term is net-30, or requiring payment 30 days after the invoice is issued. But businesses don’t have to stick with net-30. Merchants can experiment with shortening payment terms in order to encourage customers to pay on time.
4. Payment incentives
Many businesses impose a fee on late payments in order to deter them, but you can also take the opposite tack by rewarding early payments. For example, customers that pay an invoice before its due date could receive a discount on the overall cost.
4 ways to automate your collections and reduce outstanding payments
1. Meeting your customers where they are
It’s easy to blame customers when they have outstanding payments. But is your business inadvertently contributing to the problem?
Step into your customers’ shoes for a moment. They have a million things on their mind today—dropping the kids off at school, scheduling that dentist appointment they’ve been putting off, preparing for their crucial presentation later in the week, and—oh! Paying that outstanding invoice!
We all have days when we’re off, when things don’t go quite as planned, or when we feel as though we have too much to handle. If your business doesn’t make the payment process as easy and convenient as possible for your customers, then things will slip through the cracks. Well-intentioned customers will forget to make a payment, or in some cases, they’ll even attempt to make the payment, but get stymied by an inefficient, confusing process.
One of the most basic ways to cut down on outstanding payments is to meet your customers where they are. Figure out what your customers need, what they want, and give it to them. Do customers want the ability to pay online? Do they want an online portal to manage their transactions with more control? Or would they rather get a quick email invoice that they can pay right from their phone?
When you take your customers’ needs into account, you can craft a payment process that works for them. And in the long run, you’ll have fewer outstanding payments.
2. Recurring billing
Recurring billing and subscription models are becoming more and more popular. With the rise of companies like Netflix and Spotify, more of consumers’ monthly budgets are going toward subscription services.
One of the major advantages of recurring billing is that it can significantly cut down on outstanding payments. Customers are automatically billed, so barring any card errors or expirations, there’s no wait time or late payments. Once the billing date arrives, the card is automatically charged, and the merchant gets the money in their account. Best of all, since recurring billing is fully automated, it decreases late payments without any extra work from the merchant.
3. Email pay
Email pay is a payment method that allows customers to pay off invoices straight from their email inbox.
When the merchant creates an invoice in their accounting software or ERP, an email is automatically sent to the customer notifying them that payment is due. The customer then clicks on a link in the email and is taken to a secure online form, where they enter payment details and process the card. After the payment is processed, all data syncs back to the merchant’s accounting software, and the payment is automatically applied to the invoice.
Email pay reduces outstanding payments by making the payment process simple, safe, and intuitive. Customers can pay right from their phone, laptop, or computer. They don’t have to set up a specific time to pay—they don’t even have to pay during business hours. They can make a payment when it’s convenient for them. The simplicity and ease of email pay will result in faster payments, better cash flow, and fewer outstanding payments from customers.
And because email pay is automated, merchants don’t have to spend time reaching out to customers. Customers are automatically notified when invoices are due, and payments are automatically posted to the invoice.
4. Customer payment portal
A customer payment portal is a secure, online portal that allows customers to view and manage their transactions. Once they receive their login, customers can see their past transaction history, any upcoming invoices, and make payments on outstanding invoices.
Like email pay, a customer payment portal puts the power into the customer’s hands by giving them an easy-to-use tool to manage their payments on their own time. Merchants can set up automatic notifications that alert customers when invoices are upcoming or due. And of course, all payment data syncs back to the merchant’s accounting or ERP system, eliminating double data entry.
Late payments harm businesses. From the strain in cash flow to the time merchants spend following up to the potential damage to customer relationships, late payments place undue stress on businesses.
Merchants can take proactive steps to combat late payments. With the right attitude and tools, merchants can transform their collections process and significantly reduce outstanding payments.