Money is a very common stress point for businesses. Cash flow is super important to the livelihood of your business, but sometimes making sure you get money from your clients in a timely manner isn’t so easy. So how do you simplify your accounts receivable?
Simplifying Your Accounts Receivable Isn’t One Size Fits All
When deciding how to simplify your AR, the first thing you should do is consider your business model. Depending on how your business functions, simplifying could be accomplished in a variety of ways. For instance, if your business is done primarily online with direct to consumer product sales, you’ll need to employ different tactics than someone providing a service.
Make Paying Easy
Making it easy for your customers (and vendors) to pay is essential. This is important for every business. You want to make sure payment is as frictionless as possible for your clients. There are two main aspects to consider.
First, make sure that there are various ways for your customers to pay. This means accepting as many forms of payments as possible – even if that means eating the fees. Paying a minimal fee to make sure there’s no pause in your cash flow is worth it. In fact, according to Stripe.com, 85% of shoppers won’t complete a purchase if their preferred payment method isn’t available.
In addition, paying should be quick. Consumers are interested in ease and speed. In the modern age, this means having online options as opposed to accepting drop-off or mail-in checks only. It also means minimizing the hassle of the check-out experience online.
If your company relies on invoicing, we also recommending making the reminders simple too! Find an invoicing software with auto-reminders like InvoiceSherpa. For us, switching to a software with automated reminders took us from $50k of revolving AR to $5k almost overnight.
Have a Dedicated AR Department
Sometimes asking your clients for money can be stressful. Most small business owners dedicate a lot of time to cultivating close relationships with their clientele and no topic can sour a good working relationship quite like money.
But there’s a solution! Keep your relationships with your clients simple by developing a team to handle your AR. Depending on your business’s capacity, you may be able to form an in-house department. If you don’t have the man power to have an AR department of your own, consider outsourcing. The additional cost may be worth the relief.
(And if you’re interested in outsourcing your accounts receivable, learn more about it and how Encurio handles AR here.)
Pre-Billing When Possible
No one likes chasing down payment after a service has been rendered. In most cases with a product, businesses charge before the product is delivered to the customer. This isn’t always the case in the service industry.
Some services may have variable pricing based on the amount of time spent receiving the service. For instance, you could book an hour of a lawyer’s time but finish the meeting in thirty minutes. As a client, you wouldn’t expect to be billed for the full hour. In these circumstances, pre-billing may not be possible.
But in the event that the service you’re providing is a flat rate, consider pre-billing to avoid the headache of following up on payment. This could be for ad-hoc services like one-off meetings.
If you have clientele you’re servicing on a regular schedule, you could consider a fixed monthly billing. Fixed monthly billing for recurring services lets your clients agree to set amounts ahead of their recurring services and sets up an expectation for regular payment. This type of “pre-billing” helps simplify your accounts receivable by removing some of the back-and-forth that can cause a delay in your business’s cashflow.
Simplify Your AR to Simplify Your Cash Flow
For a small business, nothing is as important as maintaining cash flow. And to keep a good cash flow, keeping payment simple is key. The easier it is for your customers or clients to pay, the less hiccups you’ll have in your cash flow.
If you’re not sure the best way to simplify your accounts receivable or maintain a healthy cash flow based on these tips, considering setting a meeting with us. We’ll help you look at your options and set a plan.