How To Reduce Collections Time?
On average, it takes about 55 days for AE firms to collect invoices. This means that your firm could go through several pay periods before you get payments from your clients. Firms have to endure the struggle of seeing cash go out without cash coming in for a while. Check out this post to see the cash flow time line.
What if someone told you that there are practices you can do to possibly reduce your collection time? Would you believe them? In this blog, we are going to talk about some steps you can take to reduce your collection time so you get paid earlier than usual.
Make Sure There Are No Surprises
When it comes to paying for a product or service, no one likes to be surprised. Knowing how much your clients need to pay and what they’re paying for brings peace of mind and helps them prepare their payments better. This is why you need to be transparent with your clients and let them know when you’re going to bill them and what you’re billing them for.
Part of being transparent with your clients is keeping them updated on the progress of the projects they’re paying you to do. When having regular conversations with them, make sure to update them about the projects and find ways to include the topic of billings in the conversation. In this way, payment won’t be such a heavy topic for them.
When billings and payment become part of the casual conversation with clients, they become more used to the topic and it becomes easier for you to ask for permission before you bill them. Getting their permission before drafting and sending your invoice gives them time to prepare for it. This is also a great way to make sure that both the firm and the client sees each other eye-to-eye in terms of invoicing, and payments.
Know How To Follow Up
After sending the bill to your clients, your first follow up with them should be about confirming whether or not they’ve already received the bill. This is to ensure that you are not pointlessly waiting for their reply. Asking if they’ve received the bill is also a great way ofletting them know that you are serious about the financial obligation they have to you without being over agressive. .
When doing a follow up with clients, you should also ask if they see any irregularities in the bill. And if ever they do, you can address it immediately so you can get paid sooner.
For Habitually Slow Payers and Past Due Invoices
You don’t really need to have a Cash Flow Forecast system to have a Cash Flow Forecast conversation with a client. You can just have your bookkeeper call up the clients and say that your firm is doing an update on the Cash Flow Forecast system and ask them for an estimated time for their payment. This puts clients in a committed position to get you paid.
Date Your Invoices
Let’s pretend you are doing your March billings. Most of the time, if your invoices are dated for the beginning of April, they would probably get processed and paid in May or June. One thing you can do to reduce this processing time is by dating your invoices for the end of March or near the end of the billing period because it now becomes a March bill rather than an April bill. This might reduce the collection time by about 30 days.
Separate Your Invoices
If you are still billing fees and reimbursables on one invoice, it’s time to start separating them. This is to ensure that the clients’ payments for the fees don’t get delayed because of issues with the reimbursables. Watch the video in this post to hear a true story that brings this issue to light.
Be the Squeaky Wheel
There’s a saying that the squeaky wheel gets the grease. This principle can be used when reducing collection time. If you are the one who always does follow ups on payments, it is more likely that you are the one who’s going to get paid first. Keep in mind that you still have to be respectful and kind to your clients so you don’t annoy them into paying.
We have another post on steps you can take to get your invoice into the hands of your client sooner through expediting your billings.