5 Simple Steps to Better Collections

Outstanding collections can be an uncomfortable and challenging landscape to traverse. But when customers are late to pay, or simply don’t pay at all, it causes problems for your business. Knowing how to approach collections is half the battle – setting yourself up for success by preparing streamlined collections processes is going to make all the difference. Here are five steps you can take to make the collections process less painful for both your business and the customer.

Automate, Automate, Automate

Collections can often feel burdensome, time-consuming, and leave you feeling as if you could have better spent your time elsewhere. It’s frustrating to have to pursue collections when you’d rather be focusing on other matters. Thankfully, there are many automation tools available to help assist you with your collections process, including automated reminders, sites that allow customers to store payment methods, and others that allow for setup of recurring charges and payment plans.

Make follow-up one of your primary automation goals – setting up a weekly follow-up is something that is often included in accounting systems and bill processors, but many companies overlook this process entirely. Ensuring weekly follow-up is in place will help take some of the easier communications issues off your hands, and help you focus on bigger challenges.

Many of these tools will also allow you to track who is opening up and viewing automated reminders, as well as offering reports of what reminders customers failed to open, or which emails failed to send properly. It is vital to ensure that the AR platform you are using has the automation tools that make sense for your business, and that you are utilizing all the tools available to you.

Make it Easy for Your Customers to Pay

Consider whether you’ve made it easy for your customers to pay what they owe. Does navigating your payment portal feel challenging or frustrating from a user experience perspective? Sometimes something as small as data entry is enough to deter user interaction. Work with a vendor that will allow customers to store payment information on your payment website or portal.

Ensure that you’re offering client portals with details of every outstanding invoice – being sure to make information easily accessible is another way to smooth out the collections process. Ideally, customers should be able to gather any and all relevant information about their outstanding payments in one place.

Finally, make sure your payment options are versatile. Shoehorning a customer into one method of payment will make the collections process that much more challenging. Accept a variety of payments, like Automated Clearing House (ACH), credit cards, digital wallets (i.e., Google Pay and PayPal), and partial payments.

Monitoring & Consistency

Monitoring and consistency are key to your collections process – there’s never a day off from collections. Make it a part of your everyday work habits to check in on accounts receivable (AR) and old balances. Getting to know the cadence of customer payments will help you learn to detect changes in behavior faster and more accurately.

Be sure that you have a strong grasp on your days sales outstanding (DSO) and track it regularly. Monitoring this will allow you to benchmark it to your industry, or to prior years’ trends. Having these levels of comparison will help you determine when you need to redouble your efforts, or when a customer may be having an unusual or unexpected difficulty.

Establish achievable goals for meeting or exceeding these benchmarks as well.

Involve Your Sales Team

Out of everyone in your organization, your sales team will have one of the largest stakes in ensuring that customers pay on time. Involving your sales team in what you know about your customers, their payment trends, and any unusual behavior will help them navigate possible problems in the future. We recommend that the collections meet with the sales team regularly and share the AR aging and updates on slow payers.

On the collections side, consider the relationship that your sales team has established with your clients. Sales folks may be willing to leverage relationships and engage customers when it comes to collections – others, they may feel more comfortable leaving up to the collections team. Most commonly, sales commissions are based upon collected revenue rather than invoiced revenue, so working together on collections means everyone benefits. Transparency between sales and collections also helps to avoid any frustrations when customers slow pay and commission checks are delayed.

In summary, working with the sales team makes for a better customer experience when communication is consistent from your business, and your sales and collections team are in lock step.

Good Customers Pay on Time

Does your collections process have a built-in standard for knowing when to cut bait? Following up with a customer for weeks, or even months on end is not only tiring, but also takes away valuable time form other efforts. It’s important to establish an endpoint that all parties are aware of.

Remember, hope is not a strategy. Consider including a policy on past due AR in your customer contracts or AR remainders. This will alert the customer ahead of time to a policy of shutting off access, terminating an account, sending them to collections, and similar such processes.

When it comes to collections agencies, evaluate your options. Even if you don’t intend to send your receivables to collections, it’s worth your time to establish a relationship with a few agencies or attorneys that you can reach out to when or if the need does arise.

Finally, be sure you understand the root of the nonpayment activity. Knowing why something went awry is key in preventing it from happening again in the future.

If you are employing each of these five tactics and still experiencing slow collections, it’s time to revisit your contracts and credit policies. How did these customers make it through your credit evaluation process? Is there a common theme to the customers that wind up in collections? Are you being too aggressive with new customer approvals? Should new customers be required to pay deposits, or store credit card information in addition to credit checks? While the responsibility to pay does ultimately lie with the customer, it is important to be sure that you’re being smart about who you are selling to, and why.

If you are experiencing a slowdown in collections, our Outsourced Accounting Solutions team can assist with uncovering the root causes and implementing an action plan that incorporates the above steps. Reach out to a member of our team today!