By: Jessica Myers, CEO

As a business owner, there’s nothing better than getting paid on time. But let’s be honest, not every client lives up to those expectations. While there’s not much you can do about them and their tardy ways, you can set up an efficient accounts receivable (A/R) system to reduce the amount of time you spend tracking down invoices and following up on late payments. (If you’re not familiar with what A/R is or how it works, read this first). This is important for a few reasons. First, the longer it takes a client to pay, the less likely they are to pay the full amount. And second, not getting paid on time affects your cash flow and your ability to plan confidently to grow your business.

Setting up an A/R system to create invoices quickly and for your customers to pay easily is essential, and not as hard as you think. Here are our five best practices for companies that use A/R software to keep track of client invoices and payments.

Define your services and products, their cost, and payment terms.
Create a standard pricing list for your services or products. This will allow you to quickly and accurately fill out invoices, track sales, and keep prices consistent. Before you send out an invoice, decide what your payment terms are. (A payment term is the time between receiving an invoice and its due date. For example, an invoice sent on the first and due on the 16th is a 15-day term.) The shorter the term the better, because the longer a client has to pay, the less likely it is they will pay the full amount (if at all).

Create customer profiles in your bookkeeping system.
When you sign a new client, immediately enter them into your bookkeeping system under your client list. Make sure their profile is complete with their full name, title, business name and address, email, and telephone number. Good data can make or break both your customer relationship management (CRM) and A/R systems, so it’s essential to capture this information at the beginning. Accurate contact details make it easy to send and collect invoices or follow up with billing that has already been sent out.

Invoice first, execute second.
Create an invoice immediately upon contracting your service, accepting a project, or receiving an order. By sending an invoice before starting the work or releasing a product, you’re defining the terms of the engagement which the client must agree to before any work begins. This will reduce the chances of your clients attempting to renegotiate your rates after the work has been completed.

Most bookkeeping systems allow you to send digital invoices, but if you need to use physical copies, print and mail them the same day. If you wait to create and send your invoices, you run the risk of late or reduced payments, or you may even forget to do it entirely.

Bonus: If you have a recurring service, you can create recurring, automatic invoices through the dates of the service agreement. This ensures you’re always paid for your work and you don’t have to revisit each account to create new invoices every month.

Set up online payments.
There’s nothing simpler than online payments, and the easier it is, the faster you get paid. There are plenty of bookkeeping programs with online payment options and each works basically the same way. With online payments, every invoice includes a live link for clients to pay their bill quickly and directly. If your payment system isn’t connected directly to your A/R software, most banking institutions will share the payment information so you can mark your invoices as paid.

If you choose to collect checks or cash, deposit each of them separately. Keep the deposit receipts and write down the corresponding client’s name on each. Individual deposits will make it much easier to match each payment to the right invoice rather than puzzling over one lump sum in your bank feed. This is especially true if you wait a week or two after the deposit to record those payments.

Create emails to follow up with customers who haven’t paid on time.
No matter how good your record-keeping or processes, some clients still won’t pay you on time. Make it easy to follow up on past-due invoices via automatic email reminders. Create a standard email for the 30, 60 and 90-day past-due marks. If a client reaches the 90-day past-due mark, include a warning that you will send them to collections if they payment is not made immediately. If they still do not settle the invoice (after allowing them time to receive the email and pay you) send the customer to collections.

If your A/R system doesn’t have automated reminders, you’ll need to check your aging report (which records who has and hasn’t paid) and send those reminder emails manually.

These steps are crucial to creating an easy, seamless A/R system. With these best practices in place, you’ll be less stressed, have a better relationship with your clients, and better cash flow. Your record keeping will also be perfect, which will make tax season easier than it’s ever been.

If you need help setting up or managing your A/R come talk to us. We’ve got the tools and expertise to keep your books stress-free and on track.

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