5 ways to maximize cash flow – part 1: receivables process improvement

This is Part 1 of 5 posts on how to get the most cash flow out of your business. The focus of Part 1 is Receivables Process Improvement.

Collecting money owed to you by customers takes time, determination, and effort. Some companies have too much faith in their customers and are optimistic about getting paid without proper paperwork. Others don’t have a solid receivables process in place internally. Here are 6 keys to improving your collections process in order to maximize cash flow for your company.

1) Establish KPI’s (Key Performance Indicators). How do you measure your performance as it relates to receivable collections? Do you have a goal? Every company should have a way to measure whether or not their receivables are healthy and if their collections are meeting expectations. Determine how best to measure this for your company and set a goal for each KPI. For example, receivables over 60 days cannot exceed 5% of total receivables. Or, Days’ Sales Outstanding (DSO) cannot exceed 45. Or, the number of past due customers cannot exceed 25. There are many different ways of looking at it – find the right KPI and goal for your business, and your receivables team will have a target to aim for. Just make sure your KPI is measurable, achievable and will yield the results you are looking for.

2) Keep Score. Once you’ve established your KPI’s, keep track of your performance consistently on a weekly basis. Look at your actual performance and compare it to your goal each week. After a few weeks, you’ll know whether your performance is improving or not. If you have an AR team, this is a great way to track individual and team performance as well.

3) Confirm Receipt. There’s nothing worse than expecting payment on an invoice your customer never even received. Don’t waste precious time waiting for payment on an invoice you customer doesn’t even know exists! Follow up with your customer after you’ve sent the invoice to make sure they have received it and that there aren’t any discrepancies or issues that would prevent timely payment.

2) Scrub Invoices. A clean invoice will get paid timely. Double-check your invoices to make sure they are accurate before your customers get them. If your customer gave you a PO#, make sure it’s on the invoice. Provide a detailed description of the services or goods you provided, the name of the person who ordered or approved the purchase, and all the specifics including quantities and rates. Make it as easy as possible for your customer to pay you when they get your invoice.

4) Service your Customer. Your AR department should be trained to provide excellent customer service and to be responsive and timely in their communications with your customers. Successful collections require frequent and consistent communication with customers. But more importantly, building relationships and a rapport with them is often the most critical success factor in the entire process. In order to do that, recognize and appreciate the value of connecting with people in person or by telephone. Although sending communications via e-mail is often faster, it is often not the most effective means of communication, especially if a close relationship hasn’t been built yet, or if the collection issue is urgent. The AR department should be committed to doing whatever it takes to build close, solid relationships with your customers.

5) Get the details. Too often, late paying customers get away with telling you “the payment is being processed” or the “check is in the mail”. Don’t take this for an answer. Instead, ask for a payment date by which you can expect to receive the money. If the check has been cut, ask for a copy of it, or the check number, check date, etc.

6) Follow-up and Escalate. If your customer tells you that the payment will be processed on Monday, call on Monday to make sure that it actually is. If you’re not getting an expected payment date in a timely way, be sure to escalate the issue immediately to someone else within the organization who can contact the customer and resolve the issue.

How does your receivables process maximize your company’s cash flow?