Using Data Analytics to Optimize Your Cash Collection Approach

Data analytics technology helps improve the process of collecting payments from customers.

data analytics can help with payment collections
Shutterstock Photo License - Olivier Le Moal

Data analytics technology has become very important for helping companies manage their financial strategies. Companies are projected to spend nearly $12 billion on financial analytics services by 2028.

There are many great benefits of using data analytics to improve financial management strategies. Many investors are using data analytics to invest in stocks. Insurance companies are using data analytics to improve their actuarial processes.

However, there are equally important but often overlooked benefits of using data analytics in finance. One of the best benefits involves using data analytics to improve cash collection processes.

Data Analytics Helps Companies Create Better Cash Collection Strategies

Cash collection is essential to the continued operation of businesses. However, statistics have shown that many businesses don’t receive customer payments on time. Some of these companies have unpaid invoices that are weeks or months overdue. Though it is necessary to maintain a good customer experience, you must collect invoices that have passed their due date.

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Fortunately, new advances in technology have helped companies collect cash more easily. Data analytics technology has become very helpful for firms trying to improve their cash collection strategies.

Here are effective approaches to using data analytics to ensure prompt payment collection while maintaining good customer relationships.

Use Data Analytics Choose Customers that Are Likely to Pay their Bills

One of the most important aspects of running a successful business is choosing the right customers. Some customers have a high likelihood of being delinquent on their payments. The good news is that data analytics technology helps you profile future customers and determine if they are likely to make their payments.

Determine the best payment terms for customers

It is best to communicate your payment conditions with a customer before you initiate any transaction. Let them know your payment system. Whether using a payment processor like MasterCard, a third-party invoice collector like Upflow, or an online payment system. Also, tell your customers when you expect to receive payment after delivering their order.

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You can encourage them to pay on time by introducing late payment charges and early discounts. However, you should discuss these terms with the customers and get them to agree with the given conditions. Failure to inform them beforehand can mar customer relationships, especially when you charge them for overdue payments.

You want to choose payment terms that are fair and reasonable to all parties. You can use data analytics technology to figure out how much time customers usually need to make payments, so you can come up with the fairest option. You can start by looking at historical payments from other customers to make sure your terms will be reasonable.

Determine the best policy on upfront payments

Requesting payment before completing transactions with a new customer can help prevent late invoice issues. If your customer makes an upfront payment, you must deliver the person’s order as and when agreed. However, not all customers will agree to pay in advance. Some may opt to make part payment and complete it later.

Though you will receive a portion of the amount charged for the order, you can handle such situations. Inflate your prices with a certain percentage. Then, give the same proportion as a discount for customers paying the full upfront payment. They will prefer the discounted prices and make complete payments upfront.

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Data analytics technology can also help you figure out the best policy on upfront payments. You can look at historical data on how other customers have responded to these requests. You can also use data mining technology to see what types of policies other companies use.

Adjust the invoice schedule

You can offer trustworthy customers a personalized payment schedule. Instead of a complete upfront payment, you can divide the amount into series over several months. Customers who find it difficult to pay at once will willingly make subsequent payments within the given period. However, you have to discuss the offer with the concerned customers before you adjust the invoice schedule for those that accept it.

Customers who usually make late payments are not eligible for such an offer. They are likely to default on the remittance. It is better to use late fees to get them to pay on time.

Data analytics can help you automate these adjustments. You can use machine learning to train your invoicing software to update the terms to be more reasonable.

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Send automated reminders

Unpaid invoices don’t necessarily mean that customers want to evade payment. A typo in a customer’s email address may cause the sent invoice to get delivered to another person’s spam folder. Besides, the staff responsible for processing invoices may not be available if the invoice has reached the correct address.

Sending follow-up emails stating the delay in your payment will be ideal, and don’t accuse the person of payment evasion. It is necessary to include the invoice in your first reminder in case the customer didn’t receive the one you sent previously. Drawing the customer’s attention to the terms of payment specified in the initial contract may elicit a swift response.

If you didn’t receive payment after sending the follow-up emails, contact the customer via a phone call. Take note of the name and job position of the receiver if your customer isn’t available to answer the call.

You can also use AI technology to send automated reminders through SMS or email. This can be a good way to keep on top of invoices in case you forget to make a call. This is one feature that data-driven invoicing software often provides.

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Work directly with a staff of your customer company

You will likely experience delayed payment or lost invoices if the person processing them has other responsibilities. It would help if you reached out to staff in a better position to process your payments and work with the person. Ensure that the staff process your future invoices, allowing you to receive timely payments.

You can discuss the switch with the staff who previously processed your invoice. Let the person see why you have to choose another contact, and don’t point out poor performance as your trigger for the move. Besides, your decision will ease the person’s responsibilities a bit.

Provide several payment methods

Various payment options can encourage timely remittance as customers choose a convenient option. However, studying your customers to discover their preferred payment options will help. You can use upflow to effortlessly collect your invoices and prevent cases of overdue payment.

Sue a customer who isn’t worth your sacrifices

If a customer still avoids payment after all your attempts at cash collection, you can recover your money through legal action. Before taking this step, you must consider the value of your relationship with the owing customer. You can go on with a court case if the customer value is poor. However, the cost of the legal action may sometimes outweigh the money owed.

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Cutting off service from a customer who avoids payment saves you resources and time you would have spent chasing unpaid invoices. You are likely to get new customers who make timely payments. Besides, you can make the payment process easy for your customers. Also, reassure them that the personal information released during the process is secure.

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Data Analytics Technology Can Help Immensely When You Want to Get Customers to Pay

There are a lot of great benefits of using data analytics to improve the collection process for your business. You should do your due diligence when establishing this process. G2 has a list of payment analytics tools that are worth checking out as well.

Toni Allen is the general manager and editor of WhoIsHostingThis.com, she has two decades of experience running online businesses with a focus on web hosting technologies.