If you are not collecting at least some of your large accounts by EFT (Electronic Funds Transfer), you are behind the times and likely hurting your cash and profits. Why? Because EFT usually speeds up collection time by at least 3 days.
Think about how much business you do each day. If your sales are $40,000 per day ($14,600,000 per year), you would have $120,000 more cash in the bank right now by putting customers on EFT. If you borrow on your working capital line of credit to meet supplier payments (which are usually EFT!), it is costing you $12,000 or so each year in bank interest not to have EFT collections.
If you are paying suppliers by EFT, you are already familiar with the process. First, you must receive permission to have EFT access to your customer’s account. Your bank can provide a form that can be modified for your use, or modify the form you signed for your supplier.
Businesses who do not use EFT often are concerned they will lose customers if they insist on EFT terms. Those who have successfully switched customers to EFT say it’s simply a matter of communication. One owner explained to his customers that he was having to pay for inventory more quickly these days and needed to know the required cash was in his account on the day of his own EFT. He gave his customers an option of receiving a small discount if they allowed him to put them on EFT. He reports he did not lose a single customer and has improved his cash flow by over $300,000!
You may even be pleasantly surprised that some of your customers want EFT terms. Resellers and large companies are often very familiar with EFT and actually prefer to pay that way.
Remember when you go to EFT that you must give your customer notice of the amount that will be debited from their account. A 24 hour notice is normally sufficient.
To make your first EFT collections go smoothly, ask the cash management specialist from your bank to walk your collections person through the process. The banker should be willing to make a site visit, help you install the software and be sure that all EFT money gets in your account without a hitch.
You may also want to consult with your general ledger software vendor to see if your EFT collections can be automatically linked to your accounts receivable module. If so, you will have almost zero data entry to perform after the funds come in.
EFT collection will create cash and lower interest expense. If you haven’t started collecting this way, call your banker right now and get started!
