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As a small business owner, you have a lot on your plate.

There’s planning and strategizing, marketing and sales, customer service, human resources and more.

And then there are your finances.

With multiple clients and accounts, you have many different streams of money coming in, and it can be difficult to manage it all without falling behind. It's time-intensive and important, so it should be focused on closely. So to take some responsibility off your own busy hands, you plan to delegate your finances.

You could choose a company to manage your receivables, or call upon a debt collections agency.

But which is the right choice for your business, and your needs? Let’s look at what each service actually does, their differences and ideal situations for each service.

Defining Receivables Management

Defining Receivable Management

Receivables are the amounts you're owed by your customers and clients. The job of managing your receivables ensures that you're actually getting the money you business is owed. But effectively managing your receivables means much more than that.

Receivables management can actually help your business minimize loss, minimize the cost of credit and increase the amount of sales. They help you create the perfect balance between profits and loss. Through careful credit terms analysis, collection of funds and monitoring your cash flow, receivables management can ensure your business stays out of the red and can continue to grow.

When to Use a Receivables Management Company

Hiring a receivables management company is your business's best choice when you:

  • Need to outsource your accounts receivables. While this is something you could do in-house, it's often more time and cost efficient to hire someone with the experience and a proven record to handle these accounts.

  • Need payment monitoring. If you often extend credit to your customers, a management company can help you keep track of your payments and credit lines to ensure you get paid on time.

  • Need to ensure you are paid on time and want to increase your business’s cash flow.

  • Want to review operating costs and reduce the amount you spend.

  • Want to streamline your profit and loss cycle.

  • Want to reduce company debt.

  • Want to improve customer payments and customer relations.

Defining Debt Collections

Defining Debt Collections

While a receivables management company can help you manage your current customer payments and accounts, a debt collections agency is who you call when customer accounts become delinquent.

A debt collections agency has years of experience dealing with delinquent accounts. They have proven processes and strategies that help businesses collect their debts. They know the law inside and out, and have a team of lawyers to help them obtain your money. They also have access to tools you may not.

Overall, they have a much better chance of recovering your past due funds.

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When to Choose Debt Collections

Many businesses like to look at debt collections as a last resort. Unfortunately, the longer you wait to take action and recover your money, the less you will get back. Studies have shown that after 90 days, you're only likely to recover $0.70 for each dollar owed. And the amount just keeps dropping the longer the debt goes unpaid.

Turn to a debt collections agency when you:

  • Have already sent invoice reminders, followed up with the customer and sent demand letters – and still haven’t gotten any response.

  • Have an account that's 90+ days past due, with no sign that the customer plans to pay any time soon.

  • Have a client who's started denying ever agreeing to pay you, or is going back on your contract.

  • Find out a client has a history of not paying their business debts.

Doing Your Part as a Business Owner

Doing Your Part As A Business Owner

No matter your needs, or whether you choose a receivables management company or debt management company, there are some steps you can take to greatly increase your chances of getting paid, and on time at that. Follow these tips:

Set guidelines and processes

  • Keep strict requirements for who you offer credit to. And make sure your credit periods are kept as low as possible so clients have to pay back the funds quicker.

  • Monitor your existing customers. Be proactive and look for any payment red flags that may arise, even with long-term customers.

  • Have an action plan in event of red flags. What will you do if you notice a client suddenly avoiding payment? Be prepared to take action if necessary.

  • Use an up-to-date invoicing system that can help track your customers and outstanding invoices to prevent anything from slipping through the cracks.

  • Have a specific payment timeline, and hold your customers to it.

  • Consider tiered or value-based pricing for recurring and loyal customers, or consider incentives for early or advanced payments.

  • Add on interest or late fees when invoices are not paid in a timely manner.

  • Include multiple options for payment, such as physical check or bank transfer.  

Communicate well and often

  • Send invoices immediately after the completion of the service or dispatching the products.

  • Use an up-to-date invoicing system that can help track your customers and outstanding invoices to prevent anything from slipping through the cracks.

  • Be polite. According to Freshbooks, it really does make a difference in how quickly you get paid. Great business relationships literally pay off.

  • Send reminders. Sometimes clients honestly forget. Sending a gentle reminder can help.

You know you need help managing your business accounts. But who do you call on?

If you need help managing your accounts and your invoices, turn to a receivables management company to help keep track of everything and keep your profits high. On the other hand, if you already have accounts in arrears, it’s time for a debt collection agency to step in and help.