6 Proven Strategies to Boost Cash Collection

Finance and Accounting
Özge Tüblek
September 25, 2023

Knowing that your cash flow is progressing healthily while growing your company allows you to make decisions with more confidence. On the flip side, even if our sales grow, delayed payments can lead to a domino effect of cash flow issues.

On our Nuvio Academy article titled 7 Basic Steps for Cash Flow Management, we suggest "shortening the collection period" as a crucial step for healthy cash flow. That’s because late payments can cause serious cash flow troubles, slowing down growth and even putting a halt to it.

This is not just the a local case; we encounter a similar picture globally. In the UK alone, approximately 50,000 small businesses shut down each year due to collection issues. In France, over 60% of B2B businesses that sell to corporations cannot collect payments on time from their customers.

Failure to collect payments on time leads to three primary issues:

  1. Losses Due to the Time Value of Money: We're going through a period where inflation rates are high worldwide. Money also has a time value that we need to take into account. If we expect to collect a payment of $1000 today and if the monthly inflation rate is at 5%, its value will be $950 if we collect it one month late. In other words, delaying our $1000 collection by one month will make us lose $50.
  2. Cash Flow Bottlenecks: Managing cash flow requires a delicate balance of income and expenses. If we make immediate payments for our expenses while our collections are delayed, we may find ourselves unable to meet our obligations due to insufficient instant cash. This can lead to us borrowing at high interest rates.
  3. Effort Spent on Collection: Although it may not appear as a direct financial loss, the time spent on tracking collections also results in a loss. Think about it: Each of us has a certain amount of time allocated for our work, and this time has a specific cost. The more effort we put into collections, the more it will cost us at least as much as the effort's cost.

Understanding and addressing these issues is essential for maintaining a healthy cash flow and overall financial stability.

6 Proven Strategies to Boost Cash Collection

1- Categorize Your Customers

Having a good customer isn't solely about on-time payments, but when it comes to collections, categorizing your clients can help. Which of your clients usually pay on time? Those who are less than a week late, those who average a month late, or those who keep dragging their feet to avoid payment? In addition to time, you can also categorize them by the amounts they pay. If one customer pays 10 units and another pays 1000 units, their priorities in your collection process will differ. If your business model requires more criteria, you can follow your customers in 2-3 categories. This way, you can prioritize customers from whom you can collect quickly and in large amounts, optimizing your effort. To do this, you absolutely need a tracking system, which we'll discuss in the next point.

2- Stay on Track

A key issue with collection challenges is that invoice issuance and payment tracking often aren't integrated into our daily business practices enough. Yes, you shouldn't spend all your time on this, as doing the actual work is your priority. However, remember that collections follow the invoice. To avoid delaying your billing cycle, designate a specific day and time slot each week for this. Once the invoices are issued, tracking their due dates and collections should be a regular practice. Digital tools can significantly ease this, reminding you when an invoice is due or when a payment is late.

3- Don't Hesitate to Remind

Remember the time value of money! You now know your customers' payment habits, issue your invoices on time, and track them. But is the customer also remembering to pay? Depending on payment habits and amounts, don't hesitate to send reminders a week, two days, or even a month (whatever is needed) before the payment date. Your priority might be to first remind those with high-value invoices. Use email, SMS, or phone calls—whatever fits your business relationship. Don't worry about pressuring the other party too much, especially if your company is new. You might be helping your customer by reminding them.

4- Plan for All Scenarios

Collections are also a part of your cash flow strategy. You should be aware of all scenarios that might arise due to collections in your cash flow. Digital tools can save you from having to do constant calculations, allowing you to focus solely on your business.

5- Simplify Payment Options

Make it easy for your customers to pay you. They shouldn't have to dig around for your account number if they only make wire transfers; this information should be on the invoices. Offer them every convenience that suits your business, like online payment options and credit card payments.

6- Suggest Alternative Payment Plans

There are various ways to do this. You could offer early payment discounts or suggest different payment plans that would ease the process for your customer. This approach could strengthen your customer relationships and solve both your collection issues and your customers' payment challenges.

You can implement all these suggestions using Nuvio. Track, remind, and see the impact of various scenarios on your cash flow with a single click, all without exerting too much effort. To take control of your cash flow and collections, start your Nuvio subscription for free right now.

Özge Tüblek

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