Consider a typical cash collection cycle timeline:

• After a sale, an invoice is generated within a few days. 
• The invoice delivery time could be another 1 to 3 days depending on the delivery method. 
• An average invoice due date is 30 days. 
• Payments by check and mail could take another 3 - 5 days. 

If there are no glitches in the process, it may take more than 30 days to collect on a sale. If there is pushback on an invoice or the client isn't paying on time, the cash collection cycle could affect your business' cash flow, your ability to pay your own bills on time, including employees, and potentially damage the credit-worthiness of your own business. While shortening the collections process is ideal, increasing cash collections is also helpful.

Here are best practices to increase cash collections.

Establish a Consistent Invoicing Process

The cash collection cycle begins with your invoice. A consistent process, including the information detailed on each invoice, is necessary to improve cash collections. Does your invoice include details such as due date, dates of service or description of products, contact information, total amount due and how to pay? Are you consistently sending invoices in a timely manner? Do you regularly check your accounts receivable to know when an invoice is due?

Promptly Follow-up with Delinquent Accounts Receivable

In continuation of that last thought, your invoicing process should including regularly checking for upcoming or past due payments. If payments are delinquent and you don't know about them, the cash flow problems could start at this point. The best way to ensure your clients are paying on time, especially if the invoice is a large balance, is to follow up before payment is due. You can do this by sending a friendly email confirming payment or by following up to see if there are any questions about the invoice. For delinquent payments, follow-up as quickly as possible to determine why your client hasn't paid. Proactive actions can help prevent unnecessary burden later.

Write off Bad Debt As Soon As Possible

If it's become apparent that your client is not going to pay their invoice, it may be time to write off the bad debt and assign the account to a commercial collection agency. Your client may not offer their reasons for non-payment but these are typical:

• There may be questions or disagreement on the value of the service provided.
• Your client may be having its own financial difficulties. 
• Your client may be downsizing, merging with another company, or otherwise facing turnover.

The longer the invoice remains unpaid, your accounts receivables continues to take a hit and your days sales outstanding (DSO) increases. Your company may be impacted by this delay in converting credit to capital.  Write off the debt before year-end and send the account to a commercial collections agency. In many cases, the collections agency doesn't charge any fees unless they're able to collect.

Leverage Commercial Collection Litigation

Once the account has been sent to a commercial collections agency, you have the option of pursuing legal action after a period of unsuccessful debt recovery. Litigation is more costly than general commercial debt collection, however working with a collections agency that has an in-house legal team will save money on hiring your own lawyer. Often the threat of legal action will prompt your clients to settle or negotiate.

If our Enterprise Recovery legal team is unable to collect or negotiate with your client, we also have a national network of collection attorneys to help recovery your account.  We understand the effect of bad debts and unrecoverable accounts on your business cash flow. These best practices will help increase cash collections and establish a consistent process for invoicing and payments.

Would you like an evaluation of your Accounts Receivable, Days Sales Outstanding and Collection Procedures? 

Contact our collections team for a complimentary evaluation.