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The Best Billing Practices: Here Are 9 of Them

Jessica Elliott
Jessica Elliott
Jessica Elliott

Is your billing and collection process keeping you up at night? If not, then cash flow concerns probably are. 

Tracking down past due bills or a customer’s new address isn’t a job that any small business owner wants to tackle. However, you can decrease your days sales outstanding (DSO) with a clear billing strategy backed by best practices. 

Accounts receivable (AR) collection doesn’t need to feel like a chore. We have some tips to get paid with less hassle.

Why Optimizing Accounts Receivable Matters

Business owners spend a good chunk of time on billing and collections management. According to Sage and Plum Consulting’s report, “The Domino Effect: The Impact of Late Payments,” small to medium businesses spend about 15 days per year “chasing late payments.” 

Unfortunately, it isn’t always time well spent. The wrong billing system or no strategy at all leads to longer-than-average DSOs. Developing a transparent process and using billing software can help you: 

  • Stay on top of your company’s financial health
  • Easily view reports, collect debts and get paid quicker
  • Free up company time spent on AR collection
  • Reduce denied or disputed claims and bills
  • Understand balances due at a glance

A document labeled “Invoice.”

Reduce your DSO and ensure steady cash flow by automating your invoicing, billing and collection processes. 

The following are best practices for managing accounts receivables. Use them to develop an accurate and efficient plan that keeps accounts balanced and reduces errors.  

1. Invest in Billing Software and Other Technologies

Billing, accounting and customer relationship management (CRM) business tools automate processes and keep client information updated. 

Moreover, your financial software helps you with record keeping, which is essential if you want to take further bill collection steps, such as filing a legal claim.   

According to the American Express and PYMNTS report, “B2B Payments Innovation Readiness,” businesses relying “on manual AR processes tend to have 30% longer average days sales outstanding (DSO) and take 67% longer to follow up on overdue payments compared to firms that rely on medium or high levels of automation for collecting receivables.”

AR software, even free versions, offer several capabilities, such as:

  • Electronic payment processing: An electronic-payment billing system lets customers view electronic invoices and pay their balance due online.
  • Accounts receivable ledger: An AR ledger provides an overview of your clients’ remittance and transaction records, including outstanding and paid invoices. 
  • Financial reports: AR aging and customer activity reports help you calculate your accounts receivable turnover ratio and make informed decisions about your company’s financial health.
  • Customer statements: Create accurate invoices and send them via email, text message, or snail mail. Your software tracks various contact methods and responses.
  • Collection letter templates: Develop templates for each stage of your billing process. Escalate matters using different wording for a 3-day late notice versus a 30-day warning. 
  • Accounting process automation: Automatic payment reminders, recurring invoices and CRM integration help you avoid errors while saving time.

2. Examine Your Payment Terms and Policies

Are you regularly reviewing credit terms? What’s your new credit approval process? Do you charge a late fee or interest on unpaid balances? 

Establish a clear and efficient process, so your clients and employees know the drill. Payment terms and invoices provide information, such as:

  • Payment deadlines
  • Available transaction methods
  • Late fees or interest
  • Reference, purchase order (PO) or invoice numbers
  • Itemized descriptions for products and services
  • Tax-related information
  • Discounts or coupons applied  

Additionally, terms and conditions may detail how often your company pulls credit reports or reviews client portfolios. 

Although many business-to-business (B2B) companies rely on 30-, 60- or 90-day terms, you may find it easier to get paid if you keep it simple: Payment due upon receipt. 

Don’t forget to highlight the due date on your bill.  Adding “net 30” to your invoice doesn’t suggest urgency.  Be direct and make your bills easy to understand.

3. Define Invoicing and Collection Procedures

Timely follow-up helps you get paid.  According to the “B2B Payments Innovation Readiness” report: “Firms that wait an average of 45 days to follow up on overdue payments have 26% of their receivables overdue. Firms that follow up within five days of payments becoming overdue report a delinquency rate of just 8.8%.”

Your billing and collections management strategy should outline your step-by-step process, employee responsibilities and resources needed. 

Use financial tools to track all client interactions relating to the billing process, including:  

  • Time and date of communication
  • Method of contact, such as a telephone call or email
  • A copy of the message or recording of the collections call
  • Staff member taking the action
  • Notes regarding follow-up tasks 

4. Accept Convenient Payment Methods

Cash or check payments are great because you avoid those pesky processing fees. Accepting alternate payment methods, however, increases your chances of getting paid. 

According to the Association for Financial Professionals (AFP) 2019 “Electronic Payments Survey Report,” organizations made 42% of their supplier payments by check, down from 81% in 2004. 

Furthermore, the American Express and PYMNTS report finds “63.5% of firms are now shifting away from physical invoices, and 66.5% are receiving more payments digitally.”

It’s a best practice to accept debit and credit cards online, through your point of sale system or via a credit card scanner app. If your accounting program offers merchant payment services, you can receive money via electronic funds transfer (EFT). 

Other bill payment options include:

  • Accept credit or debit card payments over the phone
  • Offer automatic clearing house (ACH) for customers under a contract
  • Provide a customer portal where people can manage their account and payments
  • Allow mobile wallet or digital platform payments via Apple Pay or PayPal

5. Develop a Simple Billing Dispute Resolution Process

If your payer has an issue, what do they do? Chances are they’re going to reach out using their preferred communication method. You can get phone calls, text messages, emails, clients stopping by your office or shout-outs on social media.

Mistakes and misunderstandings can consume labor and financial resources. According to the American Express and PYMNTS report, 50% of companies say “high operating costs pose issues for their AR teams,” suggesting that building efficiencies into your system can save money.

The best way to handle disputes is through a customer portal or billing service provider.  If your software doesn’t support this, create a straightforward process that explains: 

  • How a payer initiates a dispute
  • Who acknowledges and oversees research and resolution
  • A process timeline for tasks and communication
  • Record keeping procedures
  • Metrics used to judge success, such as resolution rates and times

Split screen of a customer speaking with a billing service representative over the phone.

6. Keep Customer Information Updated

People move or switch phone numbers pretty regularly and use various methods to pay your business. It’s important to keep accounts updated and record invoice transactions in real-time. 

However, siloed systems can pose a risk. Instead, use a centralized client database with defined employee access roles that integrate with your billing and collections software. 

If a client updates their data with your customer service team, the finance team should have access immediately. Plus, regardless of how you accept a payment, staff should record it quickly. 

7. Leverage AR Data for Billing and Collection Insights

Good data drives better decision-making, and your accounts receivable reports can be invaluable. Start by benchmarking your AR performance using industry averages from Dun & Bradstreet’s quarterly report. 

Next, review billing and collections information, such as an AR aging report, to see your financial standing and pull a customer activity report to assess your client base. 

Analyzing weekly reports helps you answer questions about your cash flow and customers, such as: 

  • How many invoices are overdue?
  • What payment methods do your customers use?
  • Is your billing staff regularly giving discounts for past due amounts?
  • Which payers are consistently late paying their invoices?
  • How many nonsufficient funds (NSF) checks have you received?

8. Regularly Assess Your Billing and Collections Services

An invoice error, such as coding the wrong number or putting a decimal point in the wrong spot, can create a real problem. A denied claim increases your days sales outstanding, as your bill must be corrected and resent, which restarts the collections timeline.

Review your procedure regularly to ensure your company is collecting balances, assigning responsibility and correctly coding statements or purchase orders. 

Moreover, accurate record keeping is vital. Use email tracking tools and invoice billing software to see when your invoices and messages are delivered, opened and viewed. Integrate them with your CRM to get a complete timeline of communications. 

9. Use Professionals to Collect Debts

Consider outsourcing a portion of your billing and collections process. A factoring service buys your outstanding but current invoices at a discount and gives you an agreed-upon sum upfront.  This service works well for industries with longer payment cycles or slow-paying customers. 

A company also may use a collection agency or get legal advice as a last resort before writing off the debt. Debt collection services take on past due invoices through legal but at-times aggressive methods. 

Take Action With a Clear Billing Process

Make it easy — or even enjoyable — for clients to contact and pay your company. Simple payment terms, automated reminders and convenient transaction methods save time and money while improving the payer experience. 

Use financial key performance indicators to continually assess your plan and adjust it for optimal results.

Jessica Elliott Contributing Writer at Fast Capital 360
Jessica is a business-to-business content strategist and consultant with 24 years of experience in the restaurant and hospitality industry. She writes about technology, marketing and finance.
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