A poor collection system stifles a business’s cash flow and can reduce its inventory turnover. Indeed, inadequate cash flow leads to a lot of problems for businesses. Because of a lack of capital, the business may miss out on great investment offers, and advantageous sales. In the long term, they may also have problems paying wages and handling their financial commitments.
As a business owner, it is important to bear in mind that there may be delayed or missed payments. If you make supplies on credit, there is also the chance of getting paid very late. To get reimbursed, you may need to reach out to customers individually. Or better still, outsource collections to payment and software.
Software solutions like Silo automate collections, reconcile payments, track outstanding payments, schedule payment reminders, and facilitate multiple payment methods—all within a single platform. Visit https://usesilo.com/products/payments to learn more about this collection solution.
What are collections?
Collections is the term used to refer to money owed to a business by a customer. When you sell produce to a customer, you expect to be paid either at the time of the purchase or within a period usually defined in the invoice.
When the customer fails to pay within this payment schedule, the invoice becomes past due and is then categorized under “collections”.
How to better handle collections in the produce industry
1. Have an efficient accounts team
A business’s finances are only as good as the people managing it. One of the biggest root causes of poor collections is an inefficient account, payment, or collections team.
The first step in handling collections better is therefore re-evaluating your account team’s activities. Your account team must be skilled enough to monitor your accounts receivable (A/R) properly. Their A/R reports must highlight who your defaulters are, how much they owe the business, how much they have paid so far when they intend to pay the rest, and their payment plans.
This report must be duly updated and reviewed weekly to monthly. This will help you track and remain aware of your customers’ payment status.
An efficient way to do this would be to implement a produce software. It would greatly reduce the collection burden on your team as well as update the AR system and create a report for the team.
This would reduce their workload immensely, increase their accuracy exponentially, and improve the overall efficiency of the collection process.
2. Incorporate an efficient, centralized collection system
Having a system that centralizes and manages all your collections from one point encourages a seamless collection process.
Rather than having to constantly check-in with customers to confirm payment, you can easily check on your end. You can also avoid laborious paper trails because everything is encoded electronically. You can easily access collections for your business within the same software.
It saves a lot of time that would have otherwise been spent manually inputting data. It also reduces the chances of misplacing important collection documents or information. This increases accuracy and efficiency.
3. Have an open line of communication
Good communication is important in all dealings in the produce business. When it comes to collections, excellent communication is key. Verbal and written communication should be encouraged.
Have an agreement with your customers as regards payments. Be clear about your terms of collection. Discuss and agree on a payment plan from the get-go. Record these agreements and include signatures to make them legally binding.
All of this should, of course, be done in a professional and firm way. You can protect your business by being upfront with your customers and certifying both parties are on the same page. You give your collection system a fighting chance when you have specific stipulations in place.
Subsequently, refer to your A/R report to follow up on collection. A collection software can do this automatically for you. Using a collection solution, you can automatically set reminders to prompt customers when their invoice is due. Some collection solutions also allow customers to pay directly through their invoices.
Reminders about the due date should be sent, along with the terms of collection, if any were drafted. The customers should also receive a summary of their purchase, payment cleared, and payment outstanding.
4. Give unlimited payment options
Easy-to-follow procedures increase the chances of customers following them and adhering to contract terms. Give your customers as many payment options as possible. Whether they prefer to pay with a check, card, or bank transfer. Simplify the payment process and they are more likely to pay on time.
Collection software can also assist with tracking payments and reconciling them with missing payments. There is no need to run from bank to bank. All of the payment tools are synched with the software. It, therefore, allows for easy access and confirmation within the software.
It makes payment easy for the customers and improves the overall collection process of your business.
5. Have a backup cash flow plan
Even as a produce business gets better at handling collection, the business cash flow should not be solely tied to the efficacy of its collection system or process.
It is important to seek other ways to ensure that money still keeps flowing in. If most of your customer base purchases on credit, you may wish to seek new customers. You may also want to consider obtaining a loan or seeking alternative ways to access capital, such as through Silo’s funding programs.
