If you’re committed to seeing increased sales as well as your company’s steady growth, proper accounts receivable management is essential. This is something that many entrepreneurs overlook since they consider net profits as the best gauge of sound business operation. However, you need not make a similar mistake since the income statement is simply an overview of the company’s revenues to its expenses. On the other hand, accounts receivable ensure that your business’s daily operations go on seamlessly. It’s from your accounts receivable and the funds given by the debtor finance provider that enable you pay for your daily expenses, your staff, and grow your company. Therefore, it’s clear that you need to properly manage your accounts receivable. Here are some tips on how you can manage your accounts receivable:
Have in Place a Days Sales Outstanding Goal
Companies across different industries use the Days Sales Outstanding metric to measure the effectiveness of collecting accounts receivable. However, no guidelines state the terms and requirements for this collection period. Instead, it’s up to you to assess your business needs and then set a suitable collection period. The number of days your clients need to complete a payment should ideally be between 15 to 45 days. This duration is low enough to ensure you don’t encounter any cash flow issues that may hamper your business operations. In today’s market, most businesses are lowering this average period, with most requiring payment to be done within two weeks after the invoice has been sent.
Closely Monitor Your Accounts Receivable
Depending on their credit rating, the duration each customer is given to pay for goods or services provided usually differs. Therefore, you should make a point of regularly checking out where each of your clients stands throughout this entire process. When you do this, it’ll be a lot easier to quickly know when a certain customer has delayed on their payments and thus follow-up on the payment. Through this follow-up, you’ll be able to identify problematic clients and know the best way to handle any future dealings. Likewise, it helps you detect any payment lost in your mail, oversights, and any other problem that can be corrected with ease. As a result, you’ll never lose track of any money owed to you by your customers.
Assess the Company’s Credit and Financial History
It’s important to do a background check on a company’s credit and financial history before entering into any business agreement. This may entail asking other firms that have done business with the company before for feedback on how their dealings went. If you find out a company has a huge sum of outstanding credit still yet to be paid, this is a sign that it’s experiencing financial strain. Therefore, it would be in your best interest to avoid any business agreement with the business until they have their finances settled. When dealing with firms with the tendency to delay payments, you should come up with terms that are still profitable and practical for your client.
Act Quickly on the Accounts Receivable
As a business owner, the best way to ensure you receive payment for all the due receivables is by always acting quickly. This is crucial because the longer your client goes without paying you back, the higher the chances of them defaulting on payment, either fully or partially. Should a client delay paying within the agreed-upon period, get in touch with them the first day after the payment deadline. As you do this, inform them of the penalties they may face for any delayed payment in the future. If the client still isn’t responding to your requests to make the payment within the extended period, inform them of the possibility of legal action.
One of the best ways of dealing with delayed payment is by engaging your clients in an open and honest conversation. Consequently, you’ll know the reason for the payment delays and how that can be avoided in the future. This goes a long way in building a stronger and more fruitful relationship with your clients.
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Promptly Invoice Your Clients
Another excellent way of properly managing your accounts receivable is by quickly invoicing your clients immediately after the delivery of goods or services. When you do this, accountants see that you’re serious about payments, thereby reinforcing your company’s image as systematic and professional. Therefore, in case your client experiences some financial strain, they’ll prioritize paying you because they realize how serious you take accounts receivable.
Most businesses make their payment in batches – weekly, biweekly, or monthly. Thus, you should make sure to submit your invoice quickly so that the payment is made within the client’s payment and approval cycle. Knowing that your client’s approval for payments is a multi-step process, you should also submit your invoice as soon as possible.
Offer Your Customers Numerous Payment Methods
In some instances, delayed payment for products or services delivered might be a result of inconveniences in payment methods. If this is so, you should incorporate other accepted payment methods to not only make it more accessible for your customers but also enjoy prompt payment. Some of the most popular options you should consider are electronic fund transfer, credit card, and PayPal.
Be Clear and Proactive
You can also prevent delayed payment by always being clear in all your communications with your customers. You can do this by immediately sending your clients an email or calling them, asking whether they have received the invoice, and confirming the date of payment. Moreover, ensure every detail on your invoice is clear and correct, stating every vital detail that might not hinder timely payment. You should also make a point of getting in touch with your client before the payment deadline to confirm if they have all the required information.
Ensure a Positive Relationship with Your Clients
Customers play a vital role in promoting the company’s image to other prospective clients. Therefore, you should ensure all your clients are happy. This guarantees that your company will have a steady cash flow and a consistent revenue stream. One of the best ways of improving your client’s experience is by efficiently and promptly performing all your duties.
It’s no doubt that accounts receivable plays a crucial role in ensuring business operations to go on smoothly. Thus, ensure to implement each of these tips mentioned above on how to best manage your company’s accounts receivable.