Profits On Purpose | 4 Processes that Affect Your Bottom Line – The Billing/Collecting Process
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4 Processes that Affect Your Bottom Line – The Billing/Collecting Process

We’re concluding a 4 part series on processes that affect your bottom line. We started with your sales process and then moved on to the production and delivery process. Today, we’ll be discussing your payment process. The goal here will be to look at ways to shorten cycle times, eliminate mistakes through improved processes and/or change your business model if you see a way to do things more efficiently.

Most clients bill at least monthly, but I have a client who decided last year to implement weekly billing to shorten cycle times. The effect of weekly billing reduced their carrying level of accounts receivable, which freed up cash to pay down their line of credit and reduced interest expense. The impact on their business was significant.

There are many ways to improve your billing and payment process. Here are 5 for you to consider.

  • Make sure the payment amount and due date stand out. Your client must be able to scan the invoice quickly and see the amount due and when it’s due at a glance.
  • Double check your invoices. In order to avoid mistakes and delay payments, proof your invoices for typos, errors and computational mistakes.   Many times invoices are not paid due to errors you didn’t catch and is a drain on time and resources.
  • Invoices must be sent to the right person and that isn’t necessarily the project’s point person. Once your order/contract is signed ask for the name and contact person’s details of the Accounts Payables person. This information should be verified annually to insure that person hasn’t been assigned to another area or has left the company.
  • Encourage early payment. An early payment discount can help speedup payment. However, the discount should be highly visible and easily understandable. Many businesses offer 2% discount for payment in 10 days, often called 2% 10/net 30. However, you may want to remove any ambiguity by disclosing the amount of the discount and the cut off day to claim the discount.
  • Timing is everything. Invoices should be sent out as per the contract schedule or immediately upon completion of the project. There should be no delays. Timely invoices drive timely payments.

Following these 5 things will drive improved collections with better cash flow, which will either increase your cash balance or reduce interest expense on your line of credit.

Bill McDermott
bmcdermott@mcdfs.com
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