Increase Cash Flow by Shortening the Time Between Billing Cut Off and Payment Receipt
By Peter Lyle DeHaan, PhD
As we look at ways to be a responsive answering service, one critical, but too-often overlooked, the area is billing and collections. This affects cash flow and is a critical consideration in maintaining the financial viability of your answering service. Each additional day that you wait to receive payment is a day left with you trying to operate without the money that’s due you.
Let’s look at some ways to streamline billing and collections.
Billing Cutoff Date
How close is your billing cutoff date to when you begin processing invoices? The goal is to make it as short as possible. If you bill monthly, what happens when the end of the month occurs on the weekend? What if it’s a long weekend? Do you wait until Monday or the next business day to begin work on billing? If so, that’s one, two, or even three extra days added to your collection cycle.
If you bill every twenty-eight days, you can strategically pick your billing cutoff date to when you can best work on it. This might be on a Tuesday or Wednesday.
Billing Cutoff Time
When do you download or transfer your billing statistics? Though midnight is a logical cutoff time, does that make sense if you won’t start processing information until 9 a.m.? Though nine hours may not seem like much, it represents nine hours of billing that you can collect this billing cycle as opposed to the next one.
Regardless, the goal is to shorten the time between downloading your stats and sending invoices. Strive to make it the same day.
Most businesses today email their invoices. Do you? Mailing them adds an extra two or even three days to your collection cycle. Look for ways to get your invoices to your clients’ payables department as quickly as possible. Is texting invoices an option? Most people open text messages within a few minutes. That’s faster than email and much faster than snail mail.
Do you have clients mail you a check? That adds another couple of days to your collection cycle. Can you have them pay by credit card instead? Though credit card payments involve additional fees, it may be worth it to collect on time, especially for chronic late payers. What about ACH (Automated Clearing House) and ETF (electronic funds transfer)? These are low-cost ways to collect faster.
Related to credit card and ACH payment is timing. When do you process those payments? Is it when you generate the invoice, at the due date, or sometime in between? Shortening the number of days will allow you to collect faster and reduce your collection cycle. However, don’t change your processing timing without first clearly communicating the new policy to your clients.
Seek ways to shorten the time between your billing cutoff and receiving payment. This will improve your cash flow and increase the health of your answering service. For further information, explore two related accounting principles: average collection period and accounts receivable turnover.