How to Optimize Cash Flow by Defining Your Payment Policies

Imagine boosting your organization’s revenue potential overnight – not by launching a new product or service, but by optimizing your payment policies to capture funds faster.

Your company’s financial health hinges on cash flow, and a well-structured accounts receivable (AR) system plays a crucial role in keeping it strong.

Payment policies dictate:

• Payment terms (when payments are due)
• Deposit requirements (like collecting a partial payment upfront)
• Penalties for late payments (such as charging interest or fees on overdue invoices)
• Acceptable payment methods
• Credit card processing fees and more

They’re the guardrails of financial stability, keeping every transaction on track.

The Strategic Importance of Payment Policies

Every inefficient payment policy is like a leak in your cash flow bucket. Misaligned terms, weak credit policies, and limited payment options create small cracks that quietly erode the bottom line – to the tune of 10% of annual revenue, as research shows. It’s worth taking a closer look to see how much could be slipping through yours.

If you want to unlock hidden revenue in your payment policies and improve key financial metrics like Collection Effectiveness Index (CEI) and Days Sales Outstanding (DSO), let this be your roadmap. You'll discover how to enhance your policies, implement the right tools, and apply proactive strategies to enforce, monitor, and continuously optimize your collections.

Ready to see the full potential of your payment policies? Let’s dive in.

Enhance Your Policies: Pro Moves to Accelerate Profits

Defining payment policies is more than a bureaucratic checkbox – it’s about reimagining what’s possible to maximize cash inflow. Here’s what you can do to stop cash from leaking out and start increasing what you’re bringing in.

Ask yourself these 3 questions:

1. Are your payment terms engineered to drive faster, stronger cash flow?

Fine-tuning terms based on data-driven insights can reduce your collection period and revamp client relationships. A simple example of this is rewarding timely payers with extended terms and early payment discounts while requiring upfront deposits and shorter terms for new or at-risk buyers. Other opportunities include bracing for seasonal fluctuations by identifying recurring dips or spikes in payments at specific times (i.e., holidays, end-of-quarter slowdowns) and using year-over-year comparisons to reveal irregular payment trends.

2. Is your CEI telling the full story of your collections performance?

CEI provides a clear, data-driven view of how well your collections – and, by extension, payment policies – are performing, highlighting gaps, inefficiencies, and opportunities for improvement. A score of 80% or higher signals a strong strategy, while anything below 50% is a red flag that needs attention.

Tracking CEI is just the start. Take things further by analyzing payment data to see how different policies affect your score. For example, segment your data by payment terms – like early payment discounts versus extended terms – and compare the resulting CEI scores to see which policy drives faster collections. Review and refine your approach to optimize cash flow.

Learn more about CEI and how to master it with Billtrust’s comprehensive guide

3. How can data help curb late payments?

By analyzing past payment patterns, you can pinpoint customers who consistently pay late and tailor your approach accordingly. Personalized reminder campaigns, strategically timed follow-ups, and proactive outreach can nudge slow payers into faster action. For instance, our customers have seen up to a 25% improvement in cash flow and a 50% decrease in DSO.

The key takeaway is to let your data guide you. You’re sitting on a goldmine of data – it’s time to mine it. By tracking customer payment behaviors, you can tailor your policies better to effectively meet both client needs and cash flow requirements.

Let Customers Pay their Way

Electronic transfers (ACH), credit cards, online portals…every payment method has its benefits, which is why more organizations are offering multiple options to match client preferences and keep cash flowing. But if adopting digital payments were easy, every business would already be there.

Legacy systems make it difficult to seamlessly adopt new digital payment methods without disrupting existing workflows. Transaction fees and maintenance costs can quickly add up, and accurately matching and reconciling transactions across different systems can be a major headache.

Here are ways to streamline digital payments and avoid higher costs

• Consolidate payment capture in one place. This simplifies the complexities of your payments ecosystem while creating a unified, “one stop AR shop” that nearly 60% of consumers express interest in.
• Optimize card types and formats. Customize your credit card options to fit the payment guidelines that work best for you. For instance, do you know which credit card companies charge you the highest fees and which take the longest to post your payment?
• Optimize card acceptance costs. See how you can process credit card payments using higher levels of data to unlock lower fees from credit card issuers.
• Recapture card acceptance costs. Surcharging is a bit of a tightrope walk with varying state rules, card types, and customer sensitivities, but if you can make it work, you’ll get the speed of credit cards with the low cost of ACH.

From Policy to Performance: 3 Challenges and 5 Targeted Strategies

Defining payment policies sets the groundwork. To truly accelerate collections, you must pair these policies with robust tools and proactive strategies that enforce, monitor, and continuously optimize them.

Here are some common challenges in the second half of the collections battle:

Unapplied Payments: You’ve collected the money, but the longer it sits unassigned the more strain it puts on both your cash flow and customer relationships.

Indirect Payments: You offer payment flexibility, but when buyers process payments through their own ERP, bank, or AP platform, reconciliation becomes a challenge.

Manual Processes: Strong payment policies are bogged down by tedious work like enforcing policies by hand, chasing overdue fees and at-risk clients, and manually entering credit card details.

5 Strategies that will Change the Game for Collections

1. Turn Automation into your AR Advantage

When automation works for you, your AR operation becomes a powerhouse. Smart systems chase overdue payments with personalized, perfectly timed reminders. Payment security is tightened as card transactions are automatically rerouted for PCI-compliant processing. Payments are automatically matched to invoices with unparalleled speed and accuracy, and more. Many companies that Billtrust works with have seen significant results, increasing productivity by up to 80%, reducing payment acceptance costs by up to 30% on average, and achieving match rates of up to 95%.

2. Optimize with Predictive Insights and Agentic AI Agents

Automation is just the starting point. AI has significantly matured in the world of AR. Have you heard about Generative AI evolving into Agentic AI agents which can act autonomously on behalf of your team? Advanced AI analytics, Generative AI, and Agentic AI all enable teams to build a data-driven order-to-cash (O2C) process that continuously optimizes payment policies with less human intervention. At-risk accounts are flagged immediately, late fees are applied swiftly, and conversational AI churns out real-time, data-driven feedback on your KPIs and policy effectiveness – not to mention personalized invoice follow-up emails for your collections team.

Ready to see what’s beyond AR automation? Start your journey here

3. Strengthen and Streamline with a Digital Lockbox

Digital lockboxes combine speed, security, and seamless integration, enabling both buyers and suppliers to streamline payments through one connection that works with multiple AP providers, card issuers, banks, and ERP systems. The solution automatically matches payments from various channels to the right invoices and updates your accounting records in real time.

Learn more about digital lockboxes and how they work

4. Integrate for Full Cash Flow Visibility

AI unlocks powerful insights for optimizing payment policies and cash flow, but its true potential is only realized within a fully integrated ecosystem that connects banks, ERPs, and payment platforms. Look for a provider who aligns with your business rules and has a unified technology platform, ensuring seamless integration across any system you use.

5. Rethink Customer Communication

Make collections less like a pursuit and more like a partnership. Swap generic emails for personalized, proactive outreach that turns routine follow-ups into meaningful connections. Agentic AI can be extremely helpful here, crunching data in seconds to craft messages that cut through the noise and drive faster payments without teams having to lift a finger.

Optimize your payment policies, maximize cash flow, and fuel your business growth. Billtrust makes it easy.