Growing a business is not only about sales and year-over-year growth. It’s also about growing cash and being cash flow positive. It’s possible to have $50,000,000 of sales in a year with barely enough cash to pay the bills let alone cash for important projects such as strategic hires, new equipment, or system upgrades.
One fast way to burn cash is having high operational costs in the finance department specifically around manual and expensive processes like in-house or outsourced billing and collections. If an account goes unpaid, it will go to a collection agency that will pay $0.05-$0.10 on the dollar or charge commission of 30-50% success rate. Keep in mind, this financial loss happens after your billing service, RCM, internal or external call center, or other employees have spent time and cash trying to get payments.
Before you dive in, take time to read our guide for your accounts receivable process
A best practice to avoid throwing away cash is to avoid past due accounts in the first place. That sounds impossible, but we have 5 tips to help:
1. Create your payment policy
Having a document visible and available for customers and employees describing the payment policy is a great help. Clarity and transparency avoid confusion which leads to delinquent accounts. In the document, point out at least these three points:
- Payment methods accepted by the company.
- The amount of days for a bill to become delinquent.
- Fees associated with an account becoming delinquent.
It might sound trivial to include the policy with each invoice, but it helps.
2. Follow up, immediately
The day the account becomes past due, send a friendly reminder. The key is to be polite and informative regarding the delinquent account. At this stage, requesting payment with this memo is not advised. The reason, the cause of delinquency is unknown and taking a friendly and non-assumptive tone will benefit the relationship. 61% of late payments are due to compliance or administrative problems according to Credit Research Foundation. A friendly reminder will help identify the reason for the past due account which might be the company’s responsibility. Mistakes happen and this will assist in locating operational errors.
3. Make the payment easy
No matter where a customer is located in the revenue cycle, make the payment process as easy as possible. Checks are not always the simplest payment method for a client. Having multiple payment options can expedite payments reducing past due bills. Anytime friction can be reduced, the customer experience will improve along with payment rates.
Offering customers a self-serve tool will significantly accelerate payments. Anytime a call to a call center or staff member can be avoided, the better the customer experience will be and the quicker payments can be made. People like to pay their bills when it’s convenient for them, quickly.
4. Offer a payment plan
If it’s confirmed the customer is receiving invoices, reading notifications, and still not paying, then it indicates the customer is unable to pay the bill under the current terms. In most cases, the bill is for the entire balance on the due date. If it’s past due, then it’s usually demanding the full payment, now. It’s suggested to offer these customers payment plans. To ensure the payment plan will be satisfactory for the customer and the plan will be completed, understand the frequency ( monthly, weekly, bi-weekly) and the amount of the installments. Another best practice, make sure that the payment plan terms are accessible and authorized online (referencing tip #3).
5. Automatization is your friend
Automatization helps dramatically reduce cost, especially for repetitive tasks. To get control of past due accounts and make pro-active changes, automatization is key. Automating reminders, notifications, and other communications will save a lot of time and provide top-notch customer service. Payment processing should also be automated including recurring payments. Think of the massive amount of time and cash saved by allowing a system to handle these tasks reducing the need for call center and administrative support.