Managing Receivables Pays Off
Margot Brandlin
To be successful in business you must be paid in a timely manner. If you're like most businesses, you sell on credit-asking your customer to pay an invoice within a set time, like 30 days. During those 30 days you are essentially lending money to your customer, with the expectation that you will be paid back. It is only when that invoice is paid that you have the cash you need to run your business.
It's unfortunate that sometimes, getting what you're owed isn't always as easy as simply giving the customer an invoice. Almost all businesses have customers who don't pay or simply pay slowly. If you don't proactively manage your receivables, you can quickly deplete ready cash. Here are some ways you can protect your company from delinquent accounts and late payments.
1. Ensure that customers deserve credit. If necessary, perform credit checks and require that applications for credit be completed before you accept orders. If the purchase amount is particularly large, you can ask for and review the customer's financial statements. Set limits for credit and then make sure they're stuck to.
2. Run aging reports and take a look at them regularly. Aging reports will help you know what the makeup of your accounts receivable is, and show which invoices are less than 30 days old, then those that are 30 to 60 days old, 60 to 90 days old, and later. Make sure you know how you should interpret these reports so that you can spot problems early. Have someone specifically on staff to follow up with late payers. As invoices get older, they become much more difficult to collect on.
3. Mail invoices promptly. The sooner you get invoices out, the sooner payments will come in. Also make sure that your bills are clear, accurate, and detailed; the more details you include on the bill, the harder it will be for the customer to dispute your charges.
4. Reward customers to pay on time or early and penalize those who don't. Include an incentive for customers to pay promptly, such as a 2% discount if payment is made within 10 days. You can also penalize late paying customers with a late fee. Stay within legal limits when you do this.
5. Moderate your growth. If you have a significant increase in sales, this can greatly impact your company's receivables and needs for cash. Utilize the advice of a seasoned financial professional. He or she can help you develop a plan for growth. You can consider additional financing, utilize a line of credit at the bank, or consider price adjustments. You may need to sacrifice some growth in the short term to make sure that you don't overshoot your ability to pay your bills.
When companies are successful, they seek new ways to improve Accounts Receivable functions. By improving this process, they know they can reap significant financial benefit. If you have fewer outstanding, balances, this means you can have fewer bad debt write-offs and greater profitability. If your portfolio of receivables is well managed, this can also boost your cash flow and expand your working capital.
Author: Margot Brandlin writes in
|
