Late or missed payments are major pain points for any business. But maintaining a strong, steady cash flow doesn’t magically start when you send an account to a collections agency! That’s only one part of a full-cycle risk management process that begins when a prospective client first approaches you for credit.
Rather than relying on your collector as a backup plan, it’s better to try to prevent accounts receivable problems from the first time you sign up new customers and process their credit applications.
To improve your chances for a smooth relationship with your customer, accounts receivable management should be a constant from the very outset. Clear expectations are important — as is follow-through.
Credit begins before a client even comes on board
Don’t be afraid to communicate your payment policies early and often so clients know what’s expected of them — even on the credit application itself. Some other ways to help your accounts receivable management process accomplish its goals from this first step are to:
- Use a formal credit application
- Use a hands-on credit checking process
- Give incentives for prompt or early payment
Make good use of data contribution
A potential customer’s credit history is a pretty fair indicator of future behavior, so of course that information should be used to make an informed decision about whether to extend credit. But have you looked into the value of data contribution once a customer comes on board?
Reporting payment behavior to Experian and Equifax not only keeps the client on top of their payments (so you can maintain your cash flow), but also helps other credit managers and the overall business community.
Don’t fail to communicate
Be sure to send both invoices and payment reminders — and ensure clients know about penalties for late payments.
But your clients should also know how you can help them. Many customers will stop communicating with you when they are unable to make a payment, but when you can stay in touch during challenging times, you may find a way to work out a suitable arrangement. Keeping in touch helps minimize late or missed payments, thus protecting your revenue stream.
How Portfolio Management can help
Even the best customers can hit a rough patch. Ever wish you had a way to predict when this will happen so you could minimize the damage to your company?
You can, with Portfolio Management tools from MSCCM and Experian. This powerful solution monitors your portfolio for early warning signs and offers a quick way to find out which customers are a high, medium, or low credit risk.
With the right tools, you can offer convenient credit options to client while keeping your cash flow steady.