Various ways to speed up the collection process

1. Earlier Billing

An obvious but easily overlooked way to speed up the collection of receivables is to get invoices to
customers earlier. Customers have different payment habits.

Some pay their bills on the discount date or the final due date (or later), and others pay immediately on
receipt of an invoice. In any event, accelerated preparation and mailing of invoices will result in faster
payment because of the earlier invoice receipt and resulting earlier discount and due dates.

Billing can be eliminated entirely through the use of a preauthorized debit. A customer signs an
agreement with a firm allowing the firm to automatically debit the customer’s bank account on a
specified date and transfer funds from the customer’s bank to the firm’s bank.

2. Lockbox System

The single most important tool for accelerating the collection of remittances in the United States is the
lockbox. A company rents a local post office box and authorizes its bank to pick up remittances in the
box. Customers are billed with instructions to mail their remittances to the lockbox. The bank picks up
the mail several times a day and deposits the checks directly into the company’s account. The checks are
recorded and cleared for collection. The company receives a deposit slip and a list of payments, together
with any material in the envelopes.

In addition to a traditional lockbox arrangement, banks also offer to provide a firm with an electronic
lockbox to receive electronic payments. Electronic lockbox is a collection service provided by a firm’s
bank that receives electronic payments and accompanying remittance data and communicates this
information to the company in a specified format.

3. Concentration Banking

The firm that uses a lockbox network as well as the one having numerous sales outlets that receive
funds over the counter have something in common. Both firms will find themselves with deposit
balances at a number of regional banks. Each firm may find it advantageous to move part or all of these
deposits to one central location, which is known as a concentration bank. This process of cash
concentration has several effects:

1. It improves control over inflows and outflows of corporate cash. The idea is to put all of your
eggs (or in this case, cash) into one basket and then to watch the basket

2. 2. It reduces idle balances – that is, keeps deposit balances at regional banks no higher than
necessary to meet transactions needs (or alternatively, minimum compensating balance
requirements). Any excess funds would be moved to the concentration bank.

3. 3. It allows for more effective investments. Pooling excess balances provides the larger cash
amounts needed for some of the higher yielding, short-term investment opportunities that
 require a larger minimum purchase. For example, some marketable securities are sold in blocks
of $100,000 or more.

Even with steady sales and growth, if your company has continual cash flow issues due to lack of accounts
receivable management, that could slow or stop your company's growth.

“There are many different things that go into running a successful business, but cash flow is what keeps it
running,"

The important goal of accounts receivables is to minimize bad debts and to have a track of business debtors.

companies are eager to get their accounts receivable up to date. Most companies wait until an invoice is past due before taking action. But
why not be proactive?

By taking some steps to improve your billing and collections process, you can go a long way toward getting your sales finalized sooner and
more efficiently. Going proactive on this is like money in the bank.

businesses that manage their accounts receivable effectively have a formalized process for collecting accounts
receivable as well as strategies for spotting potential cash flow issues and addressing them before they
become detrimental to the business.