Best Practices for Collections

It’s important for all businesses, big and small, to take control of their accounts receivable. Properly managing your accounts receivable — the revenue you expect for the goods and services you sell — can boost your cash flow and support your other business efforts, such as staffing and marketing.

There is another good reason to stay on top of your accounts receivable: statistics show that the longer an account remains unpaid, the greater the risk that it will not be paid in full.

Although your collection policy will reflect the needs of your business, the nature of your customers, and the industry you operate in, there are some best practices common to all.
 

Offer credit carefully:

Before granting credit to a new customer, do a credit history check. Also, be sure to contact a new customer’s business references or your banker for assistance if it is a larger client.
 

Know your customers:

The more you know your customers, their businesses, and the industries they operate in, the more you’ll gain an understanding of their habits and payment patterns.
 

Bill promptly:

Send out invoices immediately after the delivery of goods or services.
 

Encourage prompt payment:

Offer a small discount to customers who pay their bills early and charge a penalty to those who pay late.
 

Set payment parameters:

Ensure that your payment terms and conditions are clearly spelled out in all of your invoices. Keep good records and follow up on payments that are not received when expected.
 

Offer exceptional customer service:

A satisfied customer is more likely to pay their bills promptly. Make sure you are meeting the needs of your customers.
 

Use collection agencies carefully:

The decision to hand over an account to a collection agency may involve considerable costs and potentially lost business. Consider using an agency only as a last resort after a frank discussion with the customer.


Knowing when to expand a business is an important decision. Grow too quickly and you can take on costs your business may not be able to support. Grow too slowly and you may miss out on valuable opportunities. Is it time for you to expand your business?