Cash collection is critical to business success. It is the oxygen that sustains life, allowing your organization to operate smoothly. Although corporate cash collection is essential, plenty of businesses across the globe have had difficulties with it.
The Impact of Overdue Payments
Overdue payments impact your liquidity, operations, customer service, and competitive advantage. Delayed payments from clients mean you can’t meet your company’s financial obligations, from paying suppliers to funding overhead expenses.
In Europe, 25% of bankruptcies are due to late payments from customers. In the US, 55% of invoiced sales are overdue, and in parts of Asia, it’s 60%. And 81% of businesses have reported an increase in delayed invoices.
The implication here, other than cash flow shortage, is that unpaid or overdue payments are revenues your business can’t access.
How do you prevent delayed payments from compromising your business? Leverage the emerging trends in cash collection.
Innovations in Cash Collection and Management
The future of cash collection is veering away from analog and manual tasks, and toward the convenience of digital processes. Through automation and digitalization, customers or clients will find it easier to pay their bills promptly.
What are some of the trends your business can adopt?
E-Invoicing
A modern form of invoicing, electronic invoicing is beginning to replace the bulky and cumbersome paper. E-invoicing automates the process, using Artificial Intelligence (AI) and Machine Learning (ML) tools. Both technologies facilitate speedy and accurate invoicing.
AI-powered templates can easily capture data from various sources and populate forms with appropriate information. It can simplify the matching of invoices with payments received, allowing finance teams to track data.
With the speed and efficiency of electronic invoicing, 74% of companies have reported fewer late payments.
E-invoicing isn’t just streamlining the cash collection and management processes. It’s also designed to reduce fraud and limit tax evasion, creating financial transparency. As such, government agencies are applying regulatory mandates in business-to-government transactions, making e-invoicing part of compliance in some countries.
Invisible Payments
The word “invisible” makes this trend seem more exciting than it really is, but it is simply the absence of interaction between a business and its paying customer.
The payment is automatic. A customer doesn’t have to click or tap a button to initiate payment; the transaction is completed once a service has been provided.
The customer only needs to authorize a payment through voice command or a contactless card. A payment processor validates the transaction, automatically taking the required amount from the customer’s account. The payment then goes directly to the business providing the service or product.
This form of frictionless payment can prevent payment disputes and allow businesses to facilitate faster payments, improving cash flow.
Invisible payments adoption is growing along with other forms of digital payment. According to Gartner, 80% of B2B sales will take place in digital channels by 2025.
Central Bank Digital Currencies (CBDCs)
When you do business across the globe, collecting payments can be challenging. You will have multiple options, such as wire transfers, checks, automated clearing house (ACH) networks, or credit cards. But speed and accuracy are sometimes not guaranteed with these options.
A new wave of digitized money could be another option. Digitized money exists in electronic form. You can transfer it, account for it, and even convert it into cash through ATMs.
Sweden, Bahamas, Nigeria, and China are just some of the 11 countries introducing digital currencies in their economies, creating what’s called central bank digital currencies (CBCDs).
CBCDs are fiat currencies issued by a central bank. It’s not to be confused with cryptocurrency, which fluctuates in value; CBCDs are government-backed, so the value is stable.
Countries are deploying CBCDs to reduce transaction costs and processing times for cross-border transactions. The digital currency can also improve financial inclusion, since many people in different parts of the world have limited to no access to banks.
Tips to Improve Cash Collection
Technology is a significant driver to improving cash collection for businesses. But not all companies can adopt innovative tools immediately. In some instances, a clear collection strategy may help improve cash flow while the business reviews which technology would be suitable.
Be clear about payment terms.
Whether the payment is for your company’s minimum package for companies or it’s a more considerable invoice, clear payment terms will inform clients about their financial obligations.
The terms must set parameters for late payments including penalties.
Communicate the terms before your client signs off on a service or product, giving them sufficient information about your business.
Offer multiple payment options.
Some of your clients may be able to pay through credit card, others may only do bank transfers. When you offer multiple payment options, you can cater to different clients and increase timely payments.
Other payment options to offer are digital payment platforms, cash payment services, and direct debit.
Consider outsourcing the task of collection.
A third-party agency that specializes in cash collection for businesses can free up your teams from chasing after unpaid invoices. It may help you speed up payments without exhausting internal resources.
Collection is critical to your business growth. Consider which innovative tools can help you improve payments, and combine that with collection strategies to ensure success.