1. Segment and monitor your accounts receivable

1. Segment your accounts receivable into tiers and monitor them diligently

It is important to keep tabs on both your unpaid and to-be-paid invoices. If there are any potential issues with the latter, you still have ample time to resolve them and prevent those invoices from becoming outstanding. Even where there are no issues, having oversight of your accounts receivable ledgers means you are well prepared to act in case of payment delay.

Whether the quantity of your overdue invoices just starts getting out of hand or is already out of reach, it is never too late to get a grip on what is going on with each invoice. Keeping regularly updated records of your accounts receivable is the very first step to gaining back control.

Uncertainties in the economic outlook often affect your customers' payment behaviour. However, a constant variable you need to take into account is business cultures. Some countries can have comparable legislation and economies, but considerable differences in payment practices.

There are fewer and shorter payment delays in countries where business cultures encourage prompt payment, and the opposite holds for countries where late payment is widely tolerated.

With many factors potentially impacting your customers' payment behaviour, there is no guarantee that all of your invoices will be paid on time. To make sure you have the capacity to follow up swiftly on the right invoices and increase your chance of collections, you should segment all your receivables into tiers. You can start with a basic three-tier system and expand it to fit your company's accounts receivable ledger along the way. "Good" receivables. They are from customers having a strong financial position and posing almost no credit risk. They are likely to be paid with no intervention. "Fair" receivables. They are from customers posing low credit risk but possibly experiencing financial distress, which can be intermittent or in tandem with certain economic events. They are likely to be paid after a few reminders or collections attempts. Most technology companies have a lot more "fair" receivables than "good" and "poor" ones. Therefore, the majority of a company's collections efforts are typically focused on this tier. "Poor" receivables. They are from customers having cash flow problems or liquidity issues. They are unlikely to be paid unless collections are executed properly and escalated where necessary.

In combination with tiers, you should also make use of methods like ageing analysis. They help indicate which of your accounts receivable are due now and which are already overdue. Then based on their tiers, you can decide on the most viable course of action for each receivable and whether in-house collections makes sense regarding the available resources.

The tiers of the receivables can fluctuate depending on your customer's payment behaviour and other factors like the economic outlook. A shift in tiers signals a need for change in your collections approach as well as change in other stakeholders. For instance, receivables from a chronic late payer can be downgraded from "fair" to "poor" – such default risk can require collections to start even before the due dates and sales to put new deals on hold until all the customer's past due invoices are settled.

Such real-time segmentation of your accounts receivable can help put outstanding invoices in order no matter how many there are and make way for better decisions on their collections.

2. Perform your collections activities methodically and persistently