Growing returns on capital and increasing business value are top goals for many, and collections is one of the first places to turn. As higher capital costs drive up the value of funds, collections timing and accounts receivable management take on a more strategic role.
Electronic payments speed collections, topping checks and cash in efficiency, fraud prevention and customer preference, while becoming the best means to improve your company’s collections.
Benefits of electronic collections
Moving from paper processing to electronic collections gets your money to you faster, has it ready to move where it receives the highest return, and minimizes processing and staff costs. Electronic and automated receivables lighten the burden on your accounting staff while minimizing errors inherent in manual processes. Your business’s ledger is cleaner and reconciled much faster than when dealing with paper. The faster the money comes in, the quicker you can put it to work as working capital or use it to reduce debt.
Automating collections can save you money. According to NACHA, the processing cost for paper checks averages $1.22 each (including labor and other costs), while ACH (Automated Clearing House) processing can cost only $0.25 cents per transaction. For a company receiving 20,000 checks per month, that’s the difference between $24,400 for paper processing versus only $5,000 for electronic – an 80 percent cost savings.
Electronic receivables not only make your financial organization more efficient; but they can also help reduce fraud. According to the 2019 AFP Payments Fraud and Control Survey, checks are still the #1 payment method targeted by fraud today. The data associated with electronic payments enables thorough and speedy payment reconciliation, leaving fewer opportunities for fraud.
Developing a payment acceptance strategy
The best collection strategies can boost your cash flow:
1. Automate high-volume, low-dollar, repetitive collections
- Use ACH debits to improve collection efficiency and lower costs
2. Use ACH with EDI (Electronic Data Interchange) to electronify large dollar payments
- Provides invoice detail for posting and reconciliation
- Offers UPIC (Universal Payment Identification Code) for greater security and privacy of proprietary bank account formation
3. Begin accepting credit and debit cards through merchant services
- Improves sales and speeds collections
- Offers Purchasing Card payment option
4. Create a website for Online Bill Presentment and Payment
- Offers online access to statements and invoice details
- Accepts ACH, debit and credit card payments
- Minimizes manual processing and costs
5. Receive batched payments from multiple sites through Bill Consolidator
- Reduces check volume
- Provides for receipt of ACH credits from customer’s bank or bill pay services
6. Update accounts receivable management software
- Avoids slower processing from outdated systems
- Captures reportable information for active receivables management
7. Reevaluate billing policies
- Send invoices on a regularly scheduled basis with payment options, terms and past due amounts
- Consider billing more than once a month
- Invoice early in the month for faster payment
8. Educate buyers on your terms
- Have your sales team discuss payment options before work completion
- Accelerate invoice delivery to match delivery or service completion
9. Make it easy for the customer to pay you
- Offer convenient payment options
- Simplify payment remittance, using electronic matching if possible
- Use multiple communication channels for reminders
10. Consider lockbox
- Evaluate internal processing costs versus lockbox outsourcing costs
- Consider lockbox advantages in speeding mail retrieval
11. Consolidate paper and electronic sources with integrated receivables
- Control receivables processing to gain greater efficiency with fewer reconciliation errors
- Reduce processing times, manage more transaction volume and expedite timely financial reporting
There are many electronic payment services including PayPal, ProPay, and Google Wallet, that can accept customer payments. Many process transactions through your bank or credit card to get cash in faster. But, will your staff spend more time in account reconciliation? Be sure to consider the posting and reconciliation process in preparing to accept electronic payments.