Managing Receivables Can Help You Be Profitable

To be successful in business you must be paid in a timely manner. If you're like most businesses, you sell on credit-asking your customer to pay an invoice within a set time, like 30 days. During those 30 days you are essentially lending money to your customer, with the expectation that you will be paid back. It is only when that invoice is paid that you have the cash you need to run your business.

Unfortunately, getting the money you're owed isn't always as easy as just sending an invoice. Almost all businesses have customers who are slow-paying or don't pay at all. If you're not proactive in managing your receivables you can quickly deplete your cash. Here are some of the best practices you can implement to protect your company from late payments and delinquent accounts.

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 right away. If you are promptly getting invoices out, payments will come in sooner. You should also make sure that your bills are very clear and accurate. Include as much detail as possible. The more detail you include, the harder it will be for the customer to dispute the amount of the bill.

4. Use rewards and penalties. Consider including an incentive for prompt payment, such as offering payment terms that provide a 2% discount for payment within 10 days. Your pricing schedule could also include a penalty fee for late payments. Be sure to stay within the limits set by law.

5. Moderate your growth. If you have a significant increase in sales, this can greatly impact your company's receivables and needs for cash. Utilize the advice of a seasoned financial professional. He or she can help you develop a plan for growth. You can consider additional financing, utilize a line of credit at the bank, or consider price adjustments. You may need to sacrifice some growth in the short term to make sure that you don't overshoot your ability to pay your bills.

When companies are successful, they seek new ways to improve Accounts Receivable functions. By improving this process, they know they can reap significant financial benefit. If you have fewer outstanding, balances, this means you can have fewer bad debt write-offs and greater profitability. If your portfolio of receivables is well managed, this can also boost your cash flow and expand your working capital.

Article Source: http://www.search4allinfo.com

About The Author: Margot Brandlin works in Minneapolis, Bookkeeping with Owl Bookkeeping and CFO. Bookkeeping in Minneapolis with OWl allows her to provide the highest caliber of service to her clients.

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