We are all in business to make money and in order to make money, it is imperative that you stay on top of your accounts receivable! Cash flow is crucial when managing a growing company. Those with optimal cash flow have mastered the balance between payments going out (payables) and payments coming in (receivables). They have tight processes that allow them to anticipate most cash flow threats before they happen. Are you prepared? Here we are going to share with you 3 tips on how to manage your accounts receivable.
Communication is Key
You need to make sure that everything about how and when you get paid is documented, agreed to, and understood by all parties. You should think about making all parties sign an agreement form. With a policy in place, you are clearly communicating the benefits of paying early (like by offering a discount of some sort), up-front deposits, as well as the consequences of paying late. As a small business owner, it’s sometimes hard to be the “bad guy” when your customer’s payment comes in late payment. The customer needs to be aware that they will incur late fees if they are late with their payments.
Track Payments Carefully
All companies that go out of business to out for the exact same reason: They run out of cash. The optimal way to manage all accounts receivable and to boost a company’s cash position is actually to not create the receivable in the first place. This is done by having the customer pay for the product or service when it’s delivered. This happens mostly via a credit card or online payment. This can be difficult, especially if someone is paying for a service and not a product. Collecting payments at the time of sale may not be practical or customary in some industries, so any receivables need to be closely monitored. If a company does not manage them, the customer will set their own repayment schedule, which will negatively impact the business’ cash flow. As a business owner, it is important to remember that credit is a privilege and should not be given to all clients.
You need to be able to establish an effective billing process. The billing and invoicing of customers must be accurate and streamlined to be effective. One way to improve billing and invoicing is by automating as much of it as possible, so don’t be afraid to rely on technology here or reach out to the experts for help.
Use the Tools You Have Available to You
Investigate different the types of software and other forms of technology for automating as many accounts receivables processes as possible. The more that you can remove the human element, the more accurate and reliable the entire process will be. Small businesses don’t always want to spend the extra money for the automated software, but the ROI (Return On Investment) can be quite considerable because there are fewer errors and, in many cases, employee productivity gets a boost too.
It is also important to keep a third party collector within an email or phone calls reach. While it’s not ideal, and you would rather not get collections involved but customers tend to respond more quickly when third-party collection agency gets involved. It can put pressure on the relationship with your customer, but sometimes it’s your only choice. Your receivables policy should determine when a third-party collection agency gets involved.
Cash flow is the lifeline of every business, and an effective accounts receivable policy is the heart of it. By keeping track of your accounts receivable, you can ensure you are getting paid for your services, maintain a steady stream of cash flow, and keep your business alive and thriving.
We would like to help you manage your accounts receivable. You can find us here, and feel free to contact us for all your small business needs. ReachOut Business Solutions wants to help you grow and scale your business, so be sure to like, comment, and follow us on Twitter, LinkedIn, and Facebook to keep up with our latest news and blogs!
