Managing Your Account Receivables
Managing account receivables is based on a very simple premise: Your customers place orders with your business and you get paid. Easy! But what happens if your customers are waiting until the very last minute to issue payment? That can create financial stress and place a strain on your cash flow. So how do you manage your account receivables without having to resort to extreme tactics, like collection agencies?
Types Of Payments Accepted
Some businesses limit themselves by only accepting paper checks. While checking has come a long way, the amount of time to mail a check and deposit it in a bank account can really slow down your cash flow. If you want your account receivables to process quickly, consider accepting online credit card payments from your customers. Some business owners even use apps to process credit cards, turning their phones into a point-of-sale, which eliminates the waiting game entirely.
Penalties For Outstanding Account Receivables
If you want to increase the rate at which customers pay you, issue and reinforce late fees on overdue account receivables. It may sound draconian, or like something only large corporations and banks do, but there’s also a reason those companies do not experience a strain on their cash flow. Make sure the penalties for late or delinquent payment are stated right on the invoice when it is first issued. This makes it abundantly clear to your customers that if they are late in paying you, that extra fees will be levied.
Credit Reporting Agencies
Businesses have credit ratings in part because other businesses report if they pay on or ahead of time on their invoices, or if they are routinely late. By working with a credit reporting agency, and letting your customers know, they will be more motivated to pay on time, or risk their credit rating getting a negative mark. Businesses like to preserve or increase their credit rating, so by employing this, your account receivables will end up becoming more manageable, almost immediately.
It is an unfortunate fact, but most invoices that go unpaid for 90 days past the due date never see payment of any kind. As you look over account receivables, and see that invoices are nearing the end of their aging windows, issue reminders. Never assume that a customer will take care of things, and leave them to pay of their own accord. They owe your business money, and sending out reminders are a great way to get them to issue payment. If anything, to keep the email, letter, and phone calls to stop.
One way to eliminate the hassle of keeping up with account receivables that are past due is to use factoring. With factoring, you sell your invoices to a third party at a slight discount in exchange for money. Many businesses use factoring companies to get rid of the aging window on invoices, because the slight fee is offset by getting money within 24 hours of submitting invoices. The second an invoice is generated, a business will give it to a factoring company, get the money they are owed (minus a slight fee) and save time and resources that would otherwise go toward tracking down payment from delinquent customers.
By following these guidelines, you can keep your account receivables under control, and enjoy a healthy cash flow for your business.