Bill collection is one of the least desirable areas of accounting. It can be mundane and emotionally draining. Often, it is postponed until it becomes unavoidable. However, bill collection isn’t merely a final effort to collect payment from accounts receivable. It must serve as part of a total credit strategy.
When bills aren’t collected in a timely manner, cash becomse tied up. This cash is needed to fuel other aspects of the business. Therefore, it is crucial to effectively retrieve payment from customers.
A total credit strategy, according to Robert Low in Accounting and Finance for Small Business Made Easy, involves the following procedures:
It must be determined whether to keep collections as an in house responsibility or to defer it to an outside agency. For in house collections, good record keeping is key to an effective bill collection system. Records must be accurate, timely and complete. It is unlikely to expect timely collection on a bill if the invoice isn’t sent out on time.
Next day billing if products are shipped or weekly billing for a professional service provided is a productive time frame. For large invoices, consider billing through overnight mail or even electronically. It pays to follow-up by phone the day before the payment is due as a friendly reminder to the client. Verify that all the information on the invoice is entered correctly so that the client has little reason to dispute the bill.
If a dispute does occur, accurate record keeping serves as a safeguard. There will be an adequate history of orders, invoices and payments with which to the refute any discrepancy. In addition, document all conversations with clients regarding bill payment.