Four Efficient Billing Practices to Reduce Your Accounts Receivable

Managing billing was likely straightforward for your small business at first. With a handful of clients, it was easy to track who had paid. However, billing records become increasingly difficult to untangle as your client base grows.  Before you know it, you're faced with a large Accounts Receivable (AR) that seems impossible to clear.

What happened, and where did you drop the ball?

The answer could be: ‘right at the beginning,’ especially if you couldn’t establish an efficient billing and invoicing system.

But there’s still hope. In this guide, we’ll walk you through some of the best billing practices to ensure your clients pay on time, you stop chasing after rogue invoices, and your cash flow remains rock solid.

What Is Accounts Receivable, and Why Must You Keep It Low?

Accounts Receivable refers to unpaid or pending payments from clients or customers. In a balance sheet or general ledger, they can be found under “Current Assets” because they’re considered future capital that adds value to your company. However, if they remain unpaid, they can become uncollected debt. This situation can lead to businesses having cash flow issues, meaning they don’t have enough money for salaries or equipment.

Non-payment issues commonly result from poor billing processes or inadequate client vetting. Businesses typically have detailed payment terms (spread over 30, 60, or 90 days) to establish client expectations. However, sometimes something breaks in the middle of this process. The invoice may be too complicated, or the client may have financial difficulties. 

While you can’t control everything that happens, you can control your billing practices and how you build client relationships. Both are very crucial to keeping AR manageable.

Four Efficient Billing Practices 

These billing strategies can be summed up in one sentence: Make it easy for clients to pay and for your system to track these payments. By removing vagueness and complications from the billing and invoicing process, you can encourage clients to simply click a link or button and pay immediately.‍

1. Establish Clear Metrics for Guiding Payment Terms

This step can be time-consuming but necessary for long-term efficiency. Before establishing client payment terms, develop key performance indicators (KPIs) with your billing and sales teams that are appropriate for your business. These metrics can include Days Sales Outstanding (DSO), the average number of days it takes to collect payment after a sale has been made, and Receivables Turnover Ratio (RTO), which indicates how good a company is at giving credit to its customers and then collecting the money back. 

Then, you can use these KPIs to develop payment terms and plans. This ensures there are no surprises, such as unexpected due dates, penalties, upfront fees, or missing billing contact numbers. 

Once you establish what works best for your company, review these metrics periodically to ensure they’re still applicable. For example, if you notice that the DSO is rising, you may need to re-evaluate your payment methods or consult your sales team for communication issues. Don’t wait until AR records start to pile up somewhere before evaluating your systems. Just because something is not broken doesn’t mean it will not break soon.

2. Implement Client-friendly Invoicing

Take a look at your invoice right now. Are the instructions clear? Are the fonts too small? Is it easy to see how much needs to be paid? Can clients click on a link and pay straight away?

Sometimes, it’s easy to make invoices too complicated in the name of accuracy. Remember that you’re not creating these documents primarily for yourself. A good invoice balances between labeling things clearly enough for bookkeeping and being straightforward enough for customers.

There are several ways to create an invoice (you can even use Excel), but an automated, cloud-based one is best for headache-free use. Excel files can be tampered with or corrupted (we’ve all seen those complicated formulas), but professional software is secure and completely customizable. These tools often have advanced features, like tracking Accounts Receivable or aging invoices across your customer database.

3. Incentivize Early Payments and Levy Fees on Overdue Customers

Everyone loves a good deal; there’s nothing like discounts to convince customers to pay early. The City National Bank recommends trying a 2% discount for payments paid within 10 days instead of 30. However, they caution you to analyze if this makes sense for your business or industry.

Do you know what’s even more effective in convincing people to pay on time? Fees and penalties. Nobody wants to drive clients away, especially if they already have financial troubles. But sticking to your payment deadlines sends a clear message of boundaries and worth. Ultimately, you might be purging yourself of problem clients (and that’s a good deal, too).

4. Ensure Your Billing Staff Is Equipped with the Right Tools/Skills

Aside from choosing a platform that automates invoicing and payment so that the client has many payment options, you need to upskill your billing team in using these technologies. Fintech companies constantly develop new tools, so you must keep up with the latest tools and features. 

If the software you use is periodically updated, your team should also be. They’re the ones who are battling with aging invoices and AR pile-ups, so they should be at the forefront of your planned investments. Whether implementing quarterly training sessions or upgrading to a better platform, you decide how efficiently you want your invoices handled. The initial costs may be hefty, but AR-turned-into-debt is more costly.

Leave the Billing (and the Headache) to Decimal

We understand the stress that untamed Accounts Receivable can bring to your business. That’s why we offer not just tools but experts dedicated to helping you weed out issues before they take root. Our automated invoicing service is tailored to help you create the best template for your business to seamlessly onboard new clients and encourage them to pay quickly. Our AR alert system immediately flags problematic invoices that could disrupt your cash flow.

Ready to transform your Accounts Receivable management? Schedule a consultation with us today to get started. Make your billing headaches a thing of the past.

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