Tag Archive for: b2b accounts receivable

5 Signs That Your Collection Policy Isn’t Working

If you’ve struggled with your B2B accounts receivable, you may have decided that enough was enough and put some kind of collection policy in place. However, collections are easier said than done. Many businesses stumble when implementing a new collection procedure or process, and end up with a policy that’s ineffective, turns customers away, and has an overall negative impact. Not sure if yours is doing the trick? Here are 5 signs that your collection policy isn’t working and it’s time to make some changes.

What Is a Collections Policy?

A collections policy is a set of guidelines and procedures that an organization or business follows in order to manage their accounts receivable, which is the money that is owed to them by their customers or clients.

It outlines the steps they will take to collect outstanding debts, including the frequency of billing, the types of communication that will be used to contact customers, and the consequences for not paying on time. It may also include information on how to handle disputes and delinquent accounts.

Why Implement a Collections Policy?

Knowing whether or when a customer will pay is an important part of your business planning. A collections policy is important for maintaining good cash flow and protecting yourself from financial losses. You need one with clear procedures for billing, invoicing, and collection to ensure that the organization is following legal and ethical guidelines for debt collection. Furthermore, it establishes expectations and communication with customers about payment terms, which can reduce the likelihood of disputes and maintain good relationships.

What Are the Legal Consequences of Having a Bad Collections Policy?

Having a bad collections policy can result in a number of legal consequences, including:

  • Violation of Consumer Protection Laws: If a collections policy violates consumer protection laws, such as the Fair Debt Collection Practices Act (FDCPA), it can lead to legal action being taken against the business. Violations of the FDCPA can result in fines, damages, and other penalties.
  • Lawsuits: If a collections policy is unfair or unethical, it can result in lawsuits being filed by the individuals or entities being targeted by the policy. This can result in costly legal fees, damages, and other penalties.
  • Reputation Damage: A bad collections policy can also damage the reputation of the business, leading to loss of customers and revenue. This can have a long-lasting impact on the business’s bottom line.
  • Regulatory Action: In addition to consumer protection laws, there are also other regulatory bodies that oversee collections practices, such as the Consumer Financial Protection Bureau (CFPB) and state attorney general offices. If a collections policy violates regulations, it can result in regulatory action being taken against the business.

Need Help Writing a Collections Letter?

If you haven’t written a collection letter before, it can be tough knowing how to get started. Check out one of our recent blogs for all the info you need to write your next one, and even get access to a sample letter that you can base your own off of!

Learn How to Write a Collection Letter

5 Signs That Your Accounts Receivable Collections Policy Needs a Change

Are you a business owner struggling with a poor collections policy? If so, you’re not alone. Here are a few signs that your current policy isn’t working:

Sign 1: You’re Constantly Chasing Customers Down

You shouldn’t have to constantly call or email customers for payment, especially on a regular basis. Make sure you give them enough time and that there aren’t any other issues (such as customer service problems) impacting your sales.

Sign 2: You Receive Late Payments More Often Than Not

You will struggle to manage your accounts receivable and cash flow if the majority of your payments arrive late. The best way to improve your collections is to identify the problem and develop a solution that keeps your customers happy and your process efficient.

Sign 3: You’re Experiencing High Levels of Bad Debt

A large portion of unpaid invoices might mean your customers aren’t getting value out of their products, or perhaps they’re struggling to pay their bills. To avoid a serious strain on your business, consider what kind of issues they are having and how you can resolve them.

Sign 4: Your Collections Effectiveness Index Is Low

The Collections Effectiveness Index (CEI) is a metric that measures the effectiveness of your accounts receivable collection policy and indicates whether yours works or not. A low CEI can indicate a difference between actual and expected recoveries. 

Sign 5: Past Due Invoices Are Stacking Up

When invoicing customers, it is important to make sure they know you will track their payments and follow through on any delinquencies.

What to Do When Your Collections Processes Aren’t Working_

What to Do When Your Collections Processes Aren’t Working

If you’ve noticed any of these signs, it’s time to take action and make some changes. Here are a few solutions you can use to improve your accounts receivable collection policy:

Take a Closer Look

Take the time to interrogate your processes and look for any weaknesses. Are you following up on past-due invoices in a timely fashion? Are you keeping your customers in the “know” by providing them with an invoice workflow that includes multiple payment options? Is there any room for improvement?

Review Invoicing Procedure

Make sure your invoices are easy to understand and are sent in a timely manner. Confusing wording or unclear descriptions can create confusion on your customers’ part, which could lead to invoices being paid late or not at all.

Here are some tips for improving your invoicing procedures:

  • Use Professional Invoicing Software: Invoicing software can streamline the invoicing process and make it easier to create and send invoices. Many invoicing software options also allow businesses to customize invoices with their branding and include payment options, such as online payment portals.
  • Standardize Invoicing Procedures: Creating standardized procedures for creating and sending invoices can help reduce errors and ensure that invoices are sent out in a timely manner. This can also help improve cash flow by ensuring that invoices are processed quickly and accurately.
  • Use Clear and Concise Language: Invoices should be easy to read and understand. Using clear and concise language can help reduce confusion and prevent errors. This can also help improve customer relationships by making it easier for customers to understand their invoices.
  • Provide Detailed Invoices: Detailed invoices can help customers understand the charges and fees they are being billed for. This can also help reduce disputes and improve customer satisfaction.
  • Set Up a System for Tracking Payments: Having a system in place for tracking payments can help businesses ensure that invoices are paid on time. This can also help identify delinquent accounts and allow businesses to take action to collect outstanding debts.
  • Send Reminders: Sending reminders to customers about upcoming or overdue invoices can help improve payment rates and reduce the amount of time it takes to collect payments.

Overall, improving invoicing processes can help businesses reduce errors, improve cash flow, and maintain positive customer relationships.

Develop Payment Plans

Whether or not you require a deposit, creating a plan that works for both you and your customers can help them better budget for their total bill and pay on time. Enabling them to make payments in smaller installments is a common solution.

Work With a Commercial Collection Agency

A professional collections agency like Rapid Collections can help you recover overdue accounts receivable quickly and efficiently. We specialize in B2B accounts receivable collection services, and our team of experienced professionals has the knowledge and experience to ensure that you get the best results. With Rapid Collections on your side, you can be sure that your accounts receivable are being handled properly, without adding additional stress or headaches to your business operations.

A Guide to Accounts Receivable Best Practices

Accounting doesn’t have to be a constant challenge. Has your team struggled to stay on top of the accounts receivable process? If so, follow our accounts receivable best practices to stop wrestling with AR and keep payments predictable.

How To Streamline Accounting Processes

Follow this list of accounts receivable best practices to make AR easy:

Establish Clear Guidelines

Does your AR process change depending on the situation or customer? This should never be the case. Shifting practices can quickly lead to inefficient and inaccurate accounting records.

The key to good accounting is standardization. Every part of your process should look the same on a day-to-day basis, with the only thing changing being the account that’s handled. A systematic approach should cover credit terms, invoices, the process of sending invoices, and a method for handling income payments. While creating and enforcing formal guidelines for all of these processes may seem excessive, it’s the foundation of an efficient accounting system.

Create Standard Operating Procedures

Once you’ve developed a logical accounting process, you need to make sure it stays logical going forward. The best way to do this is with standard operating procedures (SOPs) that formally standardize accounts receivable workflows. Documenting your process step by step is critical for two reasons.

The first reason is that it gives your employees a point of reference in case they get stuck. While it may sound unlikely that your team would forget what to do, there are niche accounting processes that aren’t conducted as regularly. A wide gap in these processes is possible, which could lead to employees overlooking crucial steps. The last thing you want is employees stumbling through their work and making critical mistakes. SOPs guarantee that they’ll always know what to do next.

The second reason you need to establish SOPs is because it improves new hire onboarding. In-person training is a key part of onboarding, and keeping this process informal could lead to gaps in best practices. While informal workarounds are acceptable in some industries, there is no room for them in accounting. Rigorous SOPs are the best way to ensure new employees follow accounting procedures.

Have Issues With Your Accounting System?
Are you having issues with your AR systems? We developed a guide that covers common issues and how you can solve them:


Improve My Accounting

Revamp Customer Communication

Customer communication is a critical part of accounts receivable best practices, especially with B2B accounts receivable. Your accounting department needs to maintain a congenial relationship with your clients. One of the best ways to keep customer relationships positive is by revamping your communication.

Payment is a touchy subject. It’s important to regularly remind clients about payments without being aggressive. Consider restructuring how your accounting team interacts with clients. You want to remind them often enough that they don’t forget, but not too often that you seem pushy. The right balance will depend on your industry.

Communicate with your clients to find the right solution. Collaborate with a long-time customer and ask them some of these questions:

  • What kind of payment system would work best for you?
  • Do you find reminders helpful or bothersome?
  • Would you be interested in an early payment incentive?
  • What’s the best way for us to reach you?
  • How often is too often when it comes to us contacting you?

Handle customer communication on a case-by-case basis. We can’t overstate the importance of this accounts receivable best practice.

Incentivize Early Payments

An accounts receivable best practice that’s grown very popular in recent years is the incentive. Payment incentives keep your AR team consistently rolling instead of dealing with an influx of payments at the end of the month. A huge portion of late payments happen because a significant amount of time has passed since the original transaction. Incentives encourage the client to keep the payment in mind because they stand to financially gain from them. Money is a great motivator.

Transition to Electronic Invoicing _

Transition to Electronic Invoicing

Electronic invoicing is another major accounts receivable best practice and what we consider to be the best way forward. There’s massive room for error in accounting systems that are dependent on paper. Not only does paper frequently get lost in transit, but it could easily get mixed up in an office. Electronic invoicing systems avoid this problem while adding their own unique advantages.

Electronic invoicing systems open the door to payment automation, which could be a huge step in streamlining your accounting system. Electronic invoicing can make customer payments automatic, which eliminates any missed payments caused by simple absentmindedness. Payment automation also translates to more consistent payments, which makes your accounting system more predictable. While predictability may be boring in some industries, it’s exactly what you want in accounting.

Start Your Collection Plan

Even with these best practices, there will always be clients who don’t pay. That’s why you need to have an actionable collection plan in place. The right collection plan will be effective without compromising your business’s reputation. If the prospect of handling accounts receivable collections on your own seems intimidating, consider partnering with a collections agency. An agency will have the tools and experience to get your AR back on track.

Turn to Rapid Collections for Accounts Receivable Best Practices

Are you tired of constantly marking down bad debt expenses or dealing with accounts that are months overdue? Partner with a collections agency. Collections agencies are made up of professionals whose primary focus is improving AR processes.

If you’re interested in collections but don’t know what agency to partner with, choose Rapid Collections. We’re a full-service provider, which means that you can lean on our support throughout the entire collections process, even if you need legal representation. Take back control of your AR and call us today.