Running a business means constantly shifting focus – you’re so busy in the day-to-day, that it can be hard to keep track of all the moving parts. Pencil, on the other hand, is in a unique position. We have a birds eye view of the businesses we work with, which gives us special insight into the errors made that have the greatest effect on cash flow.

What we see, time and time again, is that much of the focus of a business owner is directed at selling products and services. This is all well and good, but sales don’t equal cash in the bank and it’s easy to forget about building and optimising your accounts receivable process.

Suppliers that use Pencil vary from sector to sector, but one rule remains; if you want to remain solvent, a strict accounts receivable process is vital.

Before we start, what does accounts receivable mean?

When business A owes money to business B for goods or services already provided.

So, an unregulated buy-now-pay-later agreement. The World Trade Organisation suggests that 80% to -90% of all B2B goods and services are sold on some type of trade credit, so accounts receivable matters.

So here is a 5-step guide to build a better process for accounts receivable.

Step 1: Research

Don’t give credit to just anyone. Do your research first.

Not everyone is going to be a suitable customer for you. If you’ve have been in business for some time, you already know this. If you haven’t, you can learn the easy way or the hard way.

Taking on a new customer doesn’t have to be a game of Russian Roulette. By doing your research with a simple Google search and credit check, you can make an informed decision.

Step 2: Have a solid on-boarding process

Business has a framework. One party buys, one party sells and payment is exchanged for goods or services. The key to this working in reality is to establish a set of rules and deterrences. We do this by getting a signed agreement and some security (generally in the form of a guarantee or a payment method held by the supplier). A fit-for-purpose solution is integral, because the inverse is disastrous.

Step 3: Get your invoices right

There are plenty of do’s and dont’s when it comes to invoicing your customer. If you need help with your invoicing, check out our top 8 invoicing mistakes article here.
Invoices also get paid faster when you make it easy for customers to pay.

Offering convenient payment options such as direct debit and credit card will return on average a 35% increase of payments that are processed on time.

For buyers who are struggling to meet their obligations, offering a customised payment plan can get money in the door.

Step 4: Monitor

As stated in the first step, performing a credit check should be essential when on-boarding a new trade credit customer. However, this shouldn’t be where it ends.

Regular credit checks will keep you up to date with your customer’s financial position. Business behaviours can and do change over time, so you need to be informed when these changes occur.

At PencilPay, we’ve partnered with Equifax so our suppliers are only one click away from an up-to-date credit check.

Step 5: Encourage buyers to pay faster

Use the systems available to you to train your customer base into paying on time. Keep in mind your customers have plenty of bills to pay, so make sure you’re are first in line. Customers are people too, so like anyone, they need motivation.

Here are a few tricks to get your customers paying on time.

1. Start customers off on pre-paid for a month before shifting them to terms
2. Offer a discount on invoices that are paid early (but build this into your pricing)
3. Add a late fee (or the threat of a late fee)
4. Have a policy regarding late payment and stick to it.
5. Send payment reminders with a payment link

For additional help with your debtors, feel free to book in for a quick chat here in the calendar below.