A recent report released by Sageworks showed that, on average, private companies are waiting an average of four days longer to get paid than in previous years, a trend that has been growing since 2008. While firms across all industries in the service sector are being affected, accounting and consulting firms are seeing some of the biggest increases in their accounts receivable timelines.
|Industry||Increase in A/R Timeline|
Management / Tech Consulting
+ 9 days
Is the economic climate to blame? Looking into the public sector, this logic doesn’t hold true. The Wall Street Journal recently reported that consumer product giant, Procter & Gamble, plans to add weeks to its accounts payable cycle, freeing up as much as $2 billion in cash.
Aggressive cash management like this is a practice that many of the country’s largest companies are taking advantage of, with an average of 60-100 day accounts payable cycles. While these enterprises with heavy bargaining power can negotiate such terms, suppliers are left to finance the gap.
So how does a small firm combat this trend when cash flow is already tight? Assuming you’re negotiating terms with smaller business clients or even consumers, try these simple yet effective tips to negotiate better terms, or just provide faster payment options:
- Try shortening your credit terms (ex: net-30 to net-15)
- Require an up-front deposit
- Generate and send invoices as quickly as possible with electronic email invoicing
- Create early payment incentives (and/or late payment penalties)
- Work to shift more customers, especially new customers, to pay by credit card or ACH payment. This can be as easy as limiting payment options by asking, “How would you like to pay: by credit card or ACH debit?”
Businesses can see a marked shortening in their account receivable cycles by making some simple shifts in billing practices.
PaySimple is the industry-leading provider of billing, payment acceptance, and customer management solutions for SMBs in the service sector. To learn more about its solutions or see a free demo, visit https://paysimple.com. Learn how to deploy the billing tactics mentioned in this article and others by downloading a copy of the free ebook: Your Ticket to On-Time Payments.