For small to medium businesses, collecting payments from customers (usually bigger ones!) can be a challenge. Accounts receivable (AR) is money owed to you by customers, and not collecting payments on time has a massive negative impact on your business’ cash flow.

Here are 3 tips on reducing your accounts receivable.

1. Create payment terms and stick to them

The first step to reducing AR is to create payment terms and stick to them. This means setting the payment due date, payment methods, and late fees. Be sure to communicate these terms clearly to customers and include them in contracts and invoices. This will help ensure that customers are aware of the payment terms and are more likely to pay on time.

2. Utilise automated payment systems

Automated payment systems can help reduce AR by making it easier for customers to pay. Automated payment systems allow customers to set up recurring payments, which can help ensure that payments are made on time. Additionally, automated payment systems can be integrated with accounting software, which makes the accounting process more efficient. Most banks have something in place, speak to your RM to learn more.

The other option is to partner with payment solution providers who would give you the total amount upfront and collect from the client incrementally. This is a fast-growing area, get in touch if you’d like to learn more.

3. Follow up and be proactive

Finally, it’s important to follow up on late payments and to be proactive in collecting payments. This means sending out reminders and follow-up emails and calls when payments are overdue. Additionally, offering incentives to customers who pay early can help encourage timely payments.

We had a client who offered a discount if the invoice was settled prior to the due date, as well as a late penalty if it was settled beyond the agreed time. The impact was tremendous: most of the good clients paid early, which massively helped the cash flow. By following these tips, SMEs can reduce their AR and improve their cash flow.
                              Also read "How to Manage your Cash Flow Effectively"
The importance of having clear payment terms can not be overstated, and utilising automated payment systems can help make the payment process more efficient.

Finally, being proactive and following up on late payments can help ensure that customers are paying on time.

About the author

Murtaza Manji
Business Strategy & Leadership Coach
Entrepreneur, award-winning business strategy coach, and international speaker, Murtaza Manji is the co-founder of Kaizen Consulting Group which he set up in the UK in 2011 before expanding to the UAE and the USA. The company has evolved significantly over the years with ambitious plans to expand further. His vision is to positively impact the countries the Group operates in by supporting clients to create lasting values and legacies.

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Murtaza Manji - Managing Partner of Kaizen Business Consulting Group Dubai
Kaizen’s team of experts have worked with 1050+ companies across 16 different industries worldwide to achieve higher profits, greater productivity, and sustainable growth by creating efficient systems and structure. Get in touch today to see how we can support you.