As the number of small businesses experiencing cash shortfalls doubled over the past year, it’s no surprise that, owners rate their performance in every aspect of cash flow management as “needs improvement.”
Based on Truist’s 2021 Market Pulse survey of small business owners, the average business effectively provides customers with a 34-day, interest-free loan by waiting on payments from them.1 How can you improve your accounts receivable processes to keep cash moving into your business as quickly as possible?
As you look to accelerate cash flow to pay bills—as well as build cash reserves and invest in growth—rethink your collections process to free up funds you’re “lending” to customers.
#1 Break down payment barriers.
Every customer’s buying journey ends with making a payment. No matter how compelling your offering may be or how quickly the customer decides to buy, completing a sale depends on payment. Although nearly 59% of customers pay electronically, more than one-third of payments to small businesses still come by cash, check, or money order,1 which are fraud-prone and slow the flow of funds into your business.
Tight management of cash flow has been one of the top three strategies for business owners, and 91% said it was important to offer customers different payment methods to speed up the receipt of funds.1
#2 Accept payment at time of service with card or Zelle®.
Shouldn’t you be paid immediately once your customer has received your service or product? Credit cards or money transfer services like Zelle® offer payment convenience, reduce collection time from weeks to days, streamline posting and account reconciliation, and release funds tied up in accounts receivable. Your customers will appreciate the ease of payment by Zelle®, and you’ll have the funds deposited to your checking account within minutes.
#3 Invoice and bill promptly.
How fast do you convert sales to receivables? Receive funds faster by invoicing at the time of delivery or immediately after. During the pandemic (when suppliers were also experiencing cash flow challenges), fewer businesses required payment upon receipt of goods or services.
Nearly 43% of small businesses report success in managing their receivables through prompt invoicing, receipt tracking, and action on past due accounts. Another 42% plan to improve their efforts to manage receivables.1
Businesses that don’t collect payment upon receipt wait an average of 7 days before invoicing the customer.1 With the average small business customer taking 27 days to pay,1 getting the first invoice in the hands of customers early on could speed up the payment process. Consider online billing and invoicing to shorten the payment cycle, reduce postage and paper handling, and simplify posting and reconciliation.
#4 Tighten up on terms and collections.
Generous terms for customer payments can leave your business strapped for cash. More than 60% of all small business owners still offer 30-day terms or longer—essentially an interest-free loan to customers for a month or more—missing the opportunity to get cash in faster. 1
In a world shifting from paper to electronic transactions, 30-day terms built around paper invoicing and check mailings are ripe for reduction. When coupled with the acceptance of card payments or with the speed and convenience of Zelle, your business has an opportunity to move cash in more quickly and free up funds tied up in accounts receivable.
Collections provide additional opportunities to reduce receivables. Collections best practices start with clear communication of payment due dates at time of sale, and the use of email, text, mail, and phone to follow-up. Businesses can adjust messaging based on customer payment history and credit strength to target collections energy and get cash in more efficiently.