For accounts receivables (AR) teams in every organization, how to get paid faster is a priority for a faster cash flow cycle. Following up on overdue invoices and updating accounts is essential no matter what your company sells.
However, chasing late payments can be frustrating. Planning before a payment is late is crucial, especially for customers who frequently fall behind. Thankfully, there are some simple ways to get invoices paid faster. We compiled a list of tips that have helped our customers so you can do the same.
Understanding the Psychology of Payment Acceleration
Understanding the psychology behind payment behavior is essential on how to get paid faster. Human behavior significantly affects how clients prioritize and manage their payments. One key psychological concept that influences payment behavior is loss aversion.
Loss aversion refers to the tendency for individuals to strongly prefer avoiding losses over acquiring equivalent gains. In the context of payments, clients may prioritize settling invoices promptly if they perceive late payment as a loss. By framing early payment as an opportunity to avoid a loss, businesses can motivate clients to prioritize timely payments.
Businesses can leverage loss aversion by emphasizing the negative consequences of delayed payments and highlighting the benefits of early payment. Communicating the potential risks of late payment, such as late fees or damaged relationships, can prompt clients to take action to avoid these losses. Conversely, presenting early payment incentives as opportunities to prevent these losses can encourage clients to pay promptly.
Understanding the principles of loss aversion and other psychological factors enables businesses to tailor their payment strategies to align with clients' behavioral tendencies. Strategies that appeal to clients' desire to avoid losses while presenting opportunities for gains can effectively accelerate payment timelines. Incorporating psychological insights into payment practices enables businesses to cultivate stronger client relationships and enhance cash flow management.
Actionable Strategies for Getting Paid Faster
1. Chose Electronic Invoices
Sending invoices through traditional mail doesn't speed up payment; it takes longer, risks loss, and adds costs to collections. Invoicing your customers electronically can quickly solve all these challenges. By using electronic invoices, you can reduce processing costs by 81% and get paid 77% faster.
2. Automate Customer Collection Plans
Financial teams often send reminders to customers to encourage payment of unpaid invoices. Our power users approach late payments very differently. Instead of waiting for accounts to become overdue, they proactively put all their customers on automated collection plans. These plans clearly outline the steps to take when there is a slight indication that a customer may pay late.
When do you send the invoice? When does a reminder get sent? How often should you follow up by email or phone? Automated collection plans are great because they ensure you won't have to review an account and wonder what to do next.
3. Digitize Your Receivables ASAP
Digital AR software is vital for faster payment times. You can use it to create and change receivables and easily record essential data. Your team can track it and see related payments or messages in one place. A better view helps you find problems that may make your invoices unnoticed, unprocessed, or unpaid.
4. Set Up Early Payment Incentives
A common way to get paid faster is to offer customers discounts for paying early. This works exceptionally well if you use net-30 terms. Customers usually receive a 2-5% discount for paying invoices immediately. However, a 5% discount may not be ideal for collecting larger sums of money. Fortunately, there are other ways to encourage early payments. You may need to think outside the box.
- Customers who sign up for auto-pay or recurring billing receive special advantages and save money.
- Get your sales team's help by offering bonuses or delaying commission until payment. This makes your sales team a collections partner, not an adversary.
- You can incentivize customers to reduce their DSO by extending payment terms.
- Reward your collections staff with individual bonuses for improving their assigned accounts. If the entire team achieves its goals, increase the incentive.
5. Maintain Customer Communication
Regularly contacting customers is an underrated shortcut on how to get paid faster. After helping more than 120,000 businesses make payments, we have found that customers often forget about invoices they have not paid. A simple gesture can be the gentle nudge people need to get a payment on its way.
To ensure your invoices aren't ignored, meet your customer's expectations, even if they're not stated in the agreement. When you communicate regularly with your customers, they become more interested in paying you on time. Best of all, you can automate these communications using cloud solutions like Paystand.
6. Send Pre-Invoice Reminders
To get paid faster, send customers a friendly reminder email before sending them an invoice. This gives them time to prepare their payments if they’re prone to forgetfulness or fall behind schedule. Ideally, you want to send this about a week before you send them an invoice. To be polite, it's better to warn them instead of asking about the unpaid bill. To make it easier, ask if they're satisfied with the product/service and if payment is on track.
7. Use Alerts to Automate Collections
Alerts are helpful tools that can simplify your AR processes and save time by automating repetitive tasks. Create "if/then" scenarios for tasks such as following up on late payments or transferring funds between accounts. This will help you save time and focus on more important tasks instead of moving work through your pipeline.
- Handoffs. Manually approving one task and starting the next can add delays and bottlenecks to the AR process. How many hours could you save monthly if a form field automatically triggers the handoff?
- Status Updates. Once payment has been received, there's no reason you should have to update the invoice status in your ERP system. How much time would you save if your system automatically updated and communicated completed tasks? How much faster could your monthly close happen?
- Reminders. If you're a business with a handful of high-paying customers, sending communications or updates is extremely fast. However, automating reminders for approaching or past due dates can save much time for most businesses.
Here is just a sample list of tasks you can quickly automate:
- Preparing and sending invoices
- Adding payment links to invoices and emails
- Writing and sending pre-invoice reminders
- Accepting payments from customers
- Tracking payment settlement
- Verifying customers have made a payment
- Sending late payment reminders
- Setting routinely late customers on collection plans
- Reconciling payments
- Sending payment receipts
- Running financial reports
It's crucial that your software sends the invoice and accepts payment from your client automatically. This lets you and your customer focus on work instead of sending and paying invoices.
Investing in Invoicing Pays Off
Collections are vital to your larger AR management strategy. Instead of approaching invoicing as a task, imagine it as the entry point into faster payment and healthier cash flow. Overall, investing in AR automation software will improve your ROI. Stop chasing late payments and hearing the most common excuses for them, and concentrate on growing your business by improving each payment process step.
To implement some of these learnings, read our free eBook, The Controller's Guide to B2B Payment Optimization. If you found this article helpful, this short read will help you accelerate collections and save 30+ hours per month.
Book a free demo with one of our experts today to reduce overhead costs, eliminate transaction fees, and streamline collections.