How To Improve Cash Flow through Automated Billing and Collections

Late payments, write-offs, and invoice errors put a serious strain on your cash flow. But, for B2B companies, requesting payment up front can lose you customers. By using automated billing and collections, you can offer flexible payment deadlines while reducing the risk of delayed and unpaid invoices.

What is automated billing and collections, though? 

It’s the practice of using software to eliminate inefficient, error-prone manual invoicing and payment follow-up tasks, creating a streamlined accounts receivable (AR) process. 

It also aims to incentivize customers to pay early by offering the flexibility and convenience that they want. In turn, you can minimize late and overdue payments and, ultimately, get paid faster.

In this article, we’ll explore how you can use automated billing and collections to optimize your cash flow for long-term sustainability.

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7 Ways to improve cash flow through automated billing and collections

An automated billing and collections process can be implemented to achieve various goals. But which strategies are best for improving your cash flow and remaining sustainable in the face of customer demands for increased flexibility? 

Let’s get into it.

Set up recurring billing for consistent revenue

Recurring billing is a payment method that automatically bills customers according to an agreed-upon schedule (e.g., monthly, quarterly, or annually). It removes the hassle of manually creating invoices every billing cycle and reduces the risks of missed payments and invoice errors.

Recurring billing also has some serious cash flow benefits for businesses that offer subscription-based products or services.

Subscription-based pricing models are a type of contract in which your customers agree to pay a specific, recurring amount in return for a product or service. This generates predictable revenue, stabilizing your cash flow. 

Oh, and customers love subscriptions. In a recent survey by PWC, consumers cited convenience, cost-effectiveness, and consistency as their top reasons for subscribing. By automating recurring billing, you can attract and retain more customers, leading to a healthier cash flow.

To set up recurring billing, leverage business invoice software. Automatically generate and send recurring digital invoices, track invoices in real time, and accelerate collections with convenient online payment options, reminders, and more.

Automate payment reminders and notifications

When customers make late payments, your cash flow suffers. And unfortunately, late payments are a common occurrence. 

Research from Atradius discovered that 55% of all B2B invoices are paid late, causing businesses to suffer from cash flow issues and liquidity shortfalls. It drains productivity, too, as teams are forced to abandon their other duties to chase customers for owed capital.

Automated payment reminders and notifications can significantly reduce late payments. Using invoicing software, you can schedule payment reminders to be sent to customers at specific times, such as when they’re nearing their due date or on the date of their deadline. 

You can even schedule notifications to be sent at regular intervals to encourage early and timely payments.

Integrate billing with accounting and CRM systems

If you use separate billing and accounting receivable systems, integrate them to synchronize their data flow. This reduces the risk of manual errors that commonly occur during data transfer, ensures that bills are sent out in a timely manner, and improves your cash flow by enhancing visibility of invoice statuses and expenses. 

Similarly, you should consider integrating your accounts receivable solution with your customer relationship management (CRM) system to unify payment and customer data. With access to customer records within your AR system, you can create personalized invoices and track individual payment statuses with more accuracy. 

Offer multiple payment options

Customers want to make payments via the method that’s most convenient to them. If you don’t support the payment method they prefer, they’re more likely to put off paying until the last minute, negatively affecting your cash flow. 

There are plenty of payment methods available, so try to offer a variety. Popular payment methods include credit/debit cards, digital wallets, ACH wallets, and online payment gateways. 

Online payment gateways are especially popular for facilitating recurring payments. When deciding on an online payment gateway provider, aim to choose one that’s secure, intuitive, and convenient to streamline customer experiences.

As well as offering multiple payment options, remember to include the payment options that your international customers prefer. In doing so, you remove payment barriers, align your payment processes with your brand experience, and boost revenue, all of which help you sustain a healthy cash flow.

Implement automated escalation processes for collections

What happens when customers fail to make a payment by the due date? Before automation, you’d have to manually follow up with customers, which is time-consuming and frustrating. But with automation, you can set up a tiered escalation process that’s triggered as soon as a customer’s invoice becomes overdue.

For example, you might send an automated reminder to a customer on the first day of the overdue payment. From there, you could send notifications at regular intervals, such as every day or every few days. This may include an updated outstanding balance if the customer is subject to late fees (the best accounting software solutions can automate these calculations for you). 

Eventually, the overdue debt might be escalated to a phone call, a legal letter, or a collections agency, as per your pre-determined escalation rules.

With an automated escalation process in place, you can efficiently and professionally recover overdue payments without incurring the stress of manually chasing customers.

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Leverage early payment discounts or late payment fees

Early payment discounts incentivize customers to pay their invoice balance early, speeding up collections and reducing overdue payments. It can even foster a mutually beneficial relationship between you and your customers, which is key to maintaining positive, long-term relationships that drive consistent revenue.

The most common type of early payment discount that businesses offer is 2/10 Net 30. This simply means that if the customer has 30 days to pay their invoice but they pay the full balance within 10 days, they’ll receive a 2% discount. That said, the discount percentage you offer and the number of days you extend it are completely up to you.

Even better, you don’t have to make these calculations yourself. Automated billing systems can automatically apply early payment discounts when customers pay within your predetermined time frame. 

Late payment fees and penalties can also be applied as a way to encourage customers to make payments on time. 

On your invoice, clearly stipulate that if the customer fails to pay by the deadline, they’ll be subject to a late fee. Typically, this is around 1-2% monthly interest rate on the outstanding balance. This tends to deter customers from paying late and can even incentivize earlier payments, contributing to a healthier cash flow.

And, similar to early payment discounts, late fees can be automatically applied to overdue invoices.

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Track and analyze payment trends in real time

Market shifts, customer preferences, new technologies, and seasonal demands all impact customer payment behavior. If you’re not tapped into current payment trends, you risk missing out on opportunities and overlooking critical issues that are hurting your cash flow.

Automated billing systems provide insight into your unique payment trends, with the ability to track AR metrics in real time. Key AR metrics to track include days sales outstanding (DSO), which tells you how quickly customers pay their balance, and average days delinquent (ADD), which tells you how long it takes customers to pay overdue invoices.

Automated systems also use AI and machine learning to identify patterns and correlations in payment data. Through comprehensive, AI-generated reporting and analysis features, you can access key insights to make informed, strategic payment decisions to optimize your cash flow for long-term sustainability.

Key takeaways

By leveraging accounting software to automate billing and collections, you can wave goodbye to inefficient manual invoicing processes, late payments, and cash flow issues. 

At the very least, you should set up automated payment reminders and escalation processes to reduce late and overdue payments. Other strategies, such as early payment discounts, multiple payment options, and recurring billing, are also key to promoting timely payments, retaining customers, and maintaining a healthy, predictable cash flow.

So, if you’re looking to improve your cash flow while still offering the flexibility and convenience your customers crave, consider implementing these seven automated billing and collections strategies. 

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