Increasing your profit in 2024 can be as simple as speeding up collections from your clients. The faster you collect, the more cash you have in the bank. Here are six tips to help you accelerate the collection process and boost your bottom line.
1. Tighten Your Payment Terms
Review your current payment terms and consider shortening them. If your standard terms are net 30 days, try reducing them to net 15 days. For even quicker collections, you might consider requiring a 50% deposit upfront and the remaining 50% due in 15 days. While existing customers might resist changes to established terms, new customers won’t know the difference. By setting expectations from the beginning, you can significantly improve your cash flow.
2. Be Proactive with Reminders
The old saying, “The squeaky wheel gets the oil,” holds true in collections. Implement automated reminders for your customers’ accounting departments. Sending a reminder five days before an invoice is due can prompt timely payments. Additionally, consider assigning someone to personally follow up with a phone call on the due date to confirm that payment is on the way. This proactive approach ensures your invoices stay top-of-mind.
3. Send Invoices Promptly
Timely invoicing is crucial. If you delay sending out your invoices, you’ll inevitably delay receiving payments. Make it a priority to send invoices immediately after the completion of a service or delivery of a product. For instance, receiving an invoice for work done months ago can be frustrating and can delay the payment process. Ensure your invoicing system is efficient and consistent to avoid such delays.
4. Offer Early Payment Discounts
Incentivize your clients to pay early by offering discounts for prompt payments. A 1% or 2% discount can be enticing enough to encourage quicker payments. Here’s a little secret: if you slightly increase your prices by the same 1-2%, the discount won’t actually cost you anything. This strategy not only improves cash flow but also builds goodwill with your clients.
5. Enforce Late Payment Fees
You’re not a bank, and your clients should understand that. Implementing late payment fees can motivate timely payments. Consider adding a 2% late fee for overdue invoices. If clients complain, you can explain that these fees can be avoided simply by paying on time. This policy underscores the importance of timely payments and discourages delays.
6. Deliver Exceptional Value
Ultimately, the best way to ensure prompt payment is to deliver a product or service your clients can’t live without. The more valuable and indispensable your offering, the more eager your clients will be to pay. When clients recognize the high value of your service or product, they are more likely to prioritize paying your invoices.
Improving your collections process not only boosts your cash flow but also enhances your overall financial health. By implementing these tips, you can accelerate collections and increase your profit in 2024.
Need help with your Accounts Receivable or any other aspect of your accounting? We’re here to assist! Get in touch, and we’ll be happy to see how we can support your financial goals.