What are the techniques to increase accounts receivable collections?

accounts receivable

Small businesses often have cash flow issues because they struggle to collect payments. However, many small businesses do well when it comes to delivering goods or services. This could be due either to insufficient attention being paid to past-due invoices monitoring and collection, or customer creditworthiness not being thoroughly examined at the beginning. The fact that “the sale cannot be completed until the money is in the bank” is a reason why business owners should establish reasonable credit policies, employ proven cash flow techniques and enforce terms diplomatically, but firmly. 

Suggest Credit Card Options to Secure Payment 

Verify that you can accept major credit cards (Visa MasterCard, American Express, Discover) this is the next best option to cash when it comes to payment security. It also reduces the risk of losing your money. This simplifies the customer’s ordering process and can be used in many cases. Customers who do not want to pay in advance can put a “hold” on their credit cards and process the payment after the product or service has been shipped. This guarantee will protect your payment for a certain time, usually 30 days. However, it will not appear to the customer like an early payment. The credit card processing company will usually credit your company account within 3 to 5 days after credit card sales have been processed. This is in exchange for a service charge of 2-3.5 percent.

Avoid Dunning letters in the Initial Stages 

Dunning letters and overdue notices along with account statements informing of an overdue bill are often used to make a customer feel annoyed, even though they may have a legitimate reason. Instead of contacting the customer’s accounts payable representative (found in the credit application), your accounts receivable (AR), the representative should call the customer to inquire if the invoice has been lost or if they have any other problems. This will usually revolve around 80% of late payments. It also builds trust between people working for both companies.

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Collect Deposits from Anywhere You Can 

Larger orders, orders made-to-order, and custom orders require a deposit between 10% and 50% of the total purchase price. This will reduce cash flow and help ensure customer commitment to the order. These deposits should not be refunded. 

Optimise cash sales to reduce risk

Cash has no credit risk. Accepting cash and invoices is a good way to maximize cash sales. 

Require Order Advance Payments 

When you produce a product or do work over a prolonged period, make sure to include payment dates in your contract. 

Construct and implement a Credit Application Form 

Any business selling goods or services via invoice must have a credit application. A simple, one-page form can be faxed that contains important information including the customer’s account payable contact, chief executive, and department heads. A minimum of two trade references and one bank referral should be included in the form. A key administrative representative (typically the manager of smaller companies) is responsible for obtaining the information, verifying the references, and recommending credit limits based on these findings. 

Establish standard operating procedures to deal with past-due bills

A formal, written collection process should be created. It should include scripts or guidelines that will guide you in contacting past-due customers. While the approach is always polite, it becomes more formal as the amount of time has passed due. The first call is usually a polite inquiry. The company may remind them of their terms after 60 days. Credit may be suspended for 90 days. After 100 days, the account could be reverted to cash on delivery. Litigation may start if they do not pay. It is important to be ready to immediately take action if the final stage has been reached. 

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You can set a credit limit per customer regardless of their size

After checking credit references, each customer should have a credit limit. Credit limits should be established for small customers based on payment history from the mid-level up to the top. Large businesses need to establish credit limits based on their willingness to take risks. This should reflect how much of their business they are willing to dedicate to one customer. Concentrating more than 10% of your business on one customer is considered dangerous. Anything above 30%-50% could be considered very risky. Anything over 50% could spell doom for your business. Even the largest corporations can be affected by setbacks. 

Keep track of the aging receivables, both total and customer-specific

Calculate the average customer age of outstanding invoices and calculate your weekly total. The Office Manager can be given responsibility for reporting and generating this information. An “Overdue” report should be created that lists all invoices five days or more later. You should set realistic, achievable goals for “average receivable days” depending on your industry. One component of your compensation package should be tied to reaching the goal. 


It is in the best interest of a business owner to have a fair credit policy, use proven cash flow management techniques and enforce terms politely but firmly. This helps business owners to protect their interests and help them grow their business easily. 

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