When running a small business, it is important to keep an eye on each component of finances. Though seemingly daunting, wrangling these different financial elements of a business will ultimately make the business stronger and more sustainable. Starting a process is always the first hurdle, but the gains are definitely worth it.
3 Tips for Managing Accounts Receivable Successfully
One place to start for increased financial accountability is by managing accounts receivable. Perhaps this may not seem as interesting, or it may seem too much like small details when you would rather focus on big picture items. However, the small items are what make the big picture possible, so it is important to keep focused.
Corralling an unruly accounts receivable may be difficult in the beginning, but here are some simple steps to ease the process. This is the foundation that must be built in order to have an orderly, and efficient accounts receivable system that does not interfere with day-to-day operations.
1) Get organized – and stay that way
The first step is to organize yourself, the process and other associated components in order to excel. Start at the very beginning and build something exemplary from the ground up. Diligently document every step of the process, and most importantly, document who you decide to extend credit to.
Keep in mind that net terms are not for everyone. Start this process by setting up professional credit applications, as that will give you a chance to receive as much information about customers as possible. It is imperative that this information is well-documented and well-maintained, in order to feed into long-term growth of the business.
2) Do not wait, and do not hesitate to send reminders
If a payment is late, there is absolutely no reason to wait. Prolonging the process is detrimental for your business and its overall financial stability, so do not hesitate to send reminders if payments are late. As soon as the due date has passed, you must go straight after the late payment.
If a payment is late, there is absolutely no reason to wait. Prolonging the process is detrimental for your business and its overall financial stability, so do not hesitate to send reminders if payments are late. As soon as the due date has passed, you must go straight after the late payment.
There are always different reasons for late payments. Believe it or not, some often forget or are not keeping up-to-date records. But it is your job to ensure that you are not negatively impacted by their lateness. Reminder letters should go in the mail as soon as payments are marked as past due. Keeping a calendar of payments due, as well as interval reminders (i.e. a week after, two weeks after etc.) should be established and a protocol set for how to handle these situations.
3) Consider setting up automatic payments
This is a simple and clean solution to solve many issues as they pop up. Setting up automatic, and recurring credit card charges could serve dual purposes: It eliminates cash flow problems and might be preferable option for clients. It allows them to concentrate on other things that do not include accounting.
Once it is set, it is done and easy to forget. If you are not interested in pursuing automatic payments, keep in mind that incentives go a long way – no matter what you are doing. This is an important consideration when thinking about account receivable management. Some options to consider for incentives are adding finance charges for late payments, or giving customers a discount if they choose to pay early.
Managing accounts receivable is integral for sustainable business growth, especially since an unruly and disorganized process may end up costing your business more. Not only does it drain time and resources that could be diverted to more useful endeavors, but it also keeps a steady pressure on your business operations in terms of available cash flow and other aspects.
To learn more about accounts receivable management and how it can benefit your business, please contact us.
