One of the problems that many small businesses will face is that they sometimes find it hard to collect account receivables and overdue invoices payment. By failure to do so, small businesses will run into cash flow problem which will affect their operations. Therefore, it is important for you to establish formal credit policies and terms that enforce prompt payment in a diplomatic but firm manner to your clients.

Now, let me share with you 6 tips to improve account receivables collection process:

1. Ask for deposits whenever possible. For large sales orders, it is safer for you to ask for deposits first. Deposits should be non-refundable. This is to ensure that your clients are committed to the sales and alleviate any cash flow shortage on your side.

2. Allow credit card payment. By accepting credit cards payment, you can reduce overdue payment risk for your business. This method of payment also makes it convenient for your clients to make payment which will result in prompt receivables collection. If your clients are not comfortable to pay the full amount ahead of time before any work is done, they can hold on the amount of the sale against their cards and only pay in full when the service or product is deliver.

3. Allow both cash payments and invoices. By accepting cash, there is no credit risk involved. You can optimize the amount of cash receivable as a percentage of the total sale amount, to the highest amount possible for your industry.

4. Establish progress payment in stages. If you provide a service over a long period of time, you can include specific stages in your sale contract for your clients to make payment. For example, you can ask for a 30% non-refundable deposit to start off a project, another 30% of the total sale amount 1 month later, and the rest of the 40% at the completion of the project. You should always base the amount of deposit on the profit of the sale order.

5. Develop a standard procedure for overdue invoices. You should develop a formal and written standard collection procedure when contacting your clients for overdue payment. Your approach should always be courteous but firm at the same time. Usually, the first call is a courtesy reminder, which will follow by another reminder 2 weeks later to inform them that their credit is in danger. If there is still no payment being made after 30 days, you can consider taking legal action against them.

6. Always be polite when indicating an overdue invoice. You should avoid dunning letters and notices in the early stage of the collection so as not to irritate those responsible clients who may really have valid reasons for slow payment. It is better for you to call your clients and ask if the invoice has been misplaced or whatsoever. Most of the times, slow payment problems are resolved in this manner.

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