Cash flow is the oxygen of your business. And accounts receivable is often where that oxygen gets trapped.
We see it constantly. A business with strong sales, good margins, and a growing customer base that is perpetually cash-strapped because customers take 60, 90, or even 120 days to pay.
Why Receivables Slow Down
You do not invoice promptly
Every day between completing work and sending an invoice is a day added to your collection timeline. If you finish a job on Friday and invoice the following Thursday, you just added six days to your collection period for no reason.Your payment terms are too generous
Net 30 is standard, but it does not have to be your default. If your industry norms support Net 15 or even due-on-receipt, use them.You do not follow up
The single biggest reason receivables age is that nobody is watching them. Invoices go out and then everyone moves on to the next project. Without a systematic follow-up process, late payments simply accumulate.Strategies That Work
Invoice immediately
The same day the work is completed or the product ships. Better yet, invoice before delivery with deposit requirements for large projects.Offer multiple payment methods
Make it as easy as possible to pay you. Credit cards, ACH transfers, online payment portals. Every friction point you remove accelerates payment.Implement early payment discounts
A 2% discount for payment within 10 days costs you less than the carrying cost of waiting 60 days for full payment.Establish a follow-up schedule
Day 1: Invoice sent. Day 15: Friendly reminder. Day 30: Direct phone call. Day 45: Formal past-due notice. Day 60: Collections process begins. Consistency matters more than intensity.Require deposits for new customers
There is nothing wrong with requiring 50% upfront from customers you have not worked with before. It qualifies their seriousness and reduces your exposure.Fire bad-paying customers
This is the hardest one. But a customer who consistently pays 90 days late is borrowing from you interest-free. That has a real cost. Sometimes the best thing for your business is to politely decline to work with chronic late payers.The Numbers to Watch
Track your Days Sales Outstanding (DSO). Take your total receivables, divide by your average daily revenue. That gives you the average number of days it takes to collect payment. If DSO is trending up, you have a problem forming. If it is trending down, your collection efforts are working.
Review your aging report weekly, not monthly. By the time a monthly review catches a problem, you are already behind.