For as long as the rental industry has existed, a non-insignificant segment of customers have struggled to pay in accordance with their vendors’ terms. And while the cause of late and incomplete payments may vary, every instance endangers the cash flow rental businesses depend on.
Fortunately, there are ways for rental companies to actively mitigate this problem. Read the five tips below to learn how rental companies can significantly improve the likelihood of their payment terms being met.
Regularly Evaluate Your Customers’ Financial Health
When committing to any long-term payment plan, consumers are fully accustom to having their credit scores checked. Banks and car dealerships have been employing this form of risk assessment for decades and so can the rental industry. By asking customers to provide bank references or by consulting credit agencies, rental companies can easily assess the financial health of their current and prospective clients. With this knowledge, rental companies can then properly evaluate the risk they incur by making credit arrangements with particular companies.
Co-Develop Payment Terms with Your Customers
The most effective payment terms consider the needs, challenges, and expectations of customers. To get started, rental companies can collaborate with their customers to co-develop mutually acceptable framework agreements. Following that, rental companies can then add clear, achievable metrics around supply and payment terms to their service level agreements. This collaboration serves to strengthen the vendor-client relationship and ensure that all parties have a clear understanding of their agreement.
To further incentivize their customers to pay according to the terms in play, some rental providers opt to offer pre-bate and rebate incentives for early payment. While the cost of these measures might seem discouraging on the surface, the speed of payment they encourage has proven more than worth it for these companies.
Account for Order Changes at the Job Site
Job sites are complex environments with ever-shifting equipment needs. As a result, it’s common for operators to take it upon themselves to tack on additional purchases to existing orders. These rogue spenders might even bypass their company’s own procedures to get what they want!
To ensure that any additions are paid for in a timely manner, it’s imperative that rental business have their own processes in place to respond to order changes as they happen. Simply put, a speedily delivered follow-up invoice can often mean the difference between being paid on-time and having to chase down late payments.
Some rental companies operate by “no PO, no pay” policies which only further emphasizes the need to be nimble and proactive. Dealing with such policies is certainly a headache to be avoided!
Clearly Format Your Invoices
You’d be amazed by how many invoices stagnate solely due to unclear formatting. When presented with a confusing invoice, many accounts payable departments will simply cast the document aside rather than reach out for clarification. After that, the neglected invoice is likely to be totally forgotten until a reminder is issued. Payment is eventually made but long after the specified timeframe.
Clearly formatted invoices can prevent this costly cycle from occurring in the first place. Rental charging methods are inherently complex, so rental companies should strive to convey all the information their customers’ AP departments might require, in a non-overwhelming format. In addition to the usual, expected data, invoices should specify whether they are final or a continuation. This simple note can greatly help invoice matching teams determine if they have sufficient funds in their ERP to pay the invoice.
And because rental charging methods are inherently complex, it is especially crucial for invoices to clearly format critical data.
Digitize to Eliminate Errors and Inefficiency
Digital communications and accounting software have made incredible strides over the past decades, but despite that, many companies still needlessly rely on the outdated process of sending paper documents by mail. By digitizing their financial operations or introducing electronic cash management systems (eCMS), rental companies can increase productivity, eliminate errors, reduce costs, and accelerate payment delivery. In addition, technology can also be leveraged to automate the tedious but necessary process of invoice matching. Mismatched invoices are a common catalyst for payment delays, so by removing human errors, rental companies can further alleviate everyday payment obstacles.
For more rental industry-related finance tips, read our “Does Your Accounting Software Support Your Rental Business?” blog post.