Managing Receivables Pays Off |
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| By Margot Brandlin | ||||
| If you want to be successful in business, your customers
have to pay you on time. If you're like most businesses, you
sell products on a credit basis, and then ask your customer
to pay you later, such as within 30 days. During this time,
you essentially lend money to the customer, and expect that
you are going to be paid back. Only when the invoice is paid
do you have the money you need to successfully run your
business. Unfortunately, it's not always that easy to get paid. Almost every business has a customer or two who don't pay or who are slow paying. If you're not proactive and don't manage these receivables, you can quickly run out of cash. Here are some ways you can ensure customers will pay you on time. 1. Make sure customers are worth credit you give them and avoid customers that aren't. Before you accept orders, you can do credit checks and require credit applications. If the amount of purchase is big enough, you can ask for and receive financial statements. You should also set credit limits and hold to them. 2. Run aging reports and make sure you review them regularly. Aging reports help you understand how your accounts are dispersed; they'll show you which are less than 30 days old, 30 to 60 days old, 60 to 90 days old, or older. You and your staff should know how to interpret these reports so that you can spot problems early and take care of them. If necessary, assign someone specifically to follow up on problem invoices. The older invoices get, the more difficult they are to get payment for. 3. Send out invoices immediately. The sooner invoices go out, the sooner payments can come in. Your bills should also be detailed, clear and accurate. The more detail you include, the less likely it is that a customer can dispute charges. 4. Reward and penalize. Implement a plan whereby you provide incentives for prompt payment and penalties for late payments. For example, you could give customers who pay within 10 days a 2% discount. You can also automatically assess a penalty fee if a customer is more than 30 days late with payment, for example. Make sure you stay within any limits set legally, so that you don't get yourself into trouble. 5. Monitor your growth. If you have a sudden significant increase in sales, this can greatly impact your company's receivables and cash needs. Use the advice of a seasoned professional to develop a strategy for growth. You might want to consider additional financing such as a line of credit from the bank, or consider adjusting your prices. You may need to deter growth short-term to make sure that you don't outpace your ability to pay your own bills. When companies are successful, they are always looking for new ways to improve Accounts Receivable, because they know that if they do this, they can reap significant financial gains. If you have fewer outstanding balances, this can mean fewer bad debt write-offs and greater profitability. In addition, if your portfolio of receivables is well managed, this will help you boost cash flow and enable you to expand your working capital. |
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| Article Source: http://artico.co.za | ||||
| About The Author About The Author: Margot Brandlin lives and works in Minneapolis, Bookkeeping with Owl Bookkeeping and CFO. Bookkeeping in Minneapolis with Owl Bookkeeping and CFO allows her to give the highest caliber of service to her clients. |
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