There is nothing more important to the success of your business than your system for managing accounts receivable billing and the collection of payments from your customers. Sometimes this system is called payment management or a collection system.
Establish Payment Methods
How people pay you will depend primarily on the type of business you have and whether your customers are individuals or companies or both. Also, if your company is an online-only store, you will receive payment differently than a corner, brick and mortar storefront will. The more different types of payment methods you accept, the more helpful it will be for customers. But you will have to pay a premium for handling some types of payments, such as credit and debit cards.
There are some established ways to take in money from customers:
- Cash payments—primarily from individuals in a retail business
- Checks—from individuals and business customers
- Credit and debit card payments—from individuals and businesses
- Online payment methods such as PayPal—from individuals and companies
Additionally, you could choose to offer a credit or payment plan, for both individuals and business customers. An example of such a plan for a retail store would be lay-away, where the customer pays a portion each month until they pay off the balance of the purchase. Alternatively, you could allow the customer to receive the goods and they would pay you after receipt on a scheduled payment plan.
You may even wish to accept payment from a third-party or other external sources such as an insurance company. Car repair shops may use this type of system as well as firms that sell to large construction firms.
Set Up Payment Processing "Rules of Thumb"
After you have determined what types of payments to take, you will need to set out some rules for your employees regarding the acceptance and handling of these payment types.
For example, you should have rules for accepting checks. Determine if you will allow only business checks or if you will take personal checks. Also, set the information you require to process the payment such as a driver's license number.
Some forms of payment like a revolving credit may require you to check the credit history of the client. You may set limits that a customer cannot exceed. In some cases, you may charge a service fee for the paperwork and accounting involved in keeping these types of accounts. It is also a good idea to create itemized invoices for these accounts that will allow you to keep track of their purchases and make for easier returns.
Send out Bills
Send out bills to customers who owe you money. Send a billing at least once a month, or more often if you are serious about collecting money. You will want to account for how long it takes customers to pay and show any past due balance on the next billing.
Run an Accounts Receivable Aging Report
Depending on your type of business, you may have customers who do not pay when purchasing, or who are paying over a timeframe. Running accounts receivable aging report will show you when to send out bills and when to initiate stronger collection methods.
Initiate Collections Proceedings for Non-payers
For customers who do not pay within a reasonable amount of time (as determined by your "rules of thumb,") initiate collections proceedings. You may want to send an account to a collections agency or to small claims court. Decide which is best for each type of account.
Setting up and working a collections management system can help you collect the money that you are due and keep cash flow moving through your company.