While generating revenues, managing expenses and earning profits is important, proper account receivables management is important as well. It’s a pretty simple concept: the more efficient your receivables are managed the better your cash flow. The better the cash flow, the quicker your payables are paid. When that happens, you don’t have to worry about keeping creditors at bay or making payroll on Friday because your balance sheet is strong.
Remember, the balance sheet shows the overall health of your company. A stronger balance sheet helps you grow your business by allowing you to obtain financing to help you buy equipment, move into better facilities, etc.
Over the six years I’ve served in the commercial finance industry, I have learned many ways to manage receivables that I’d like to share with you. While some of you may read this and think it’s pretty basic stuff, to others this may be timely advice.
Tips for Better Accounts Receivable Management
So, without further ado here are some tips to help you better manage your receivables:
1. Book all new sales as soon as possible. The quicker you book a sale, the quicker the invoice goes out to your customer. If you follow where I am going with this, then I bet you figured out this means you collect your money faster.
2. Utilize accounting software. Accounting software helps you keep your accounting records organized and really have a better handle on the operations of your business.
3. Consider offering quick-pay discounts. It’s amazing how a small discount can be such a big incentive for your customer to pay you quicker.
4. Perform a daily review of accounts receivables. By simply monitoring your accounts receivables daily and contacting customers that may have outstanding invoices, you help your receivables to come in faster. There are often many reasons for customers not paying. One particularly surprising reason is that the customer just simply does not have a copy of the invoice. I can’t tell you how many times I have seen this come up.
5. Consider factoring your receivables. Some of you may not know about factoring or receivables financing. Factoring is simply selling your receivables to a third party, known as a factor or funding business. By factoring your receivables, you get your hands on the cash you need to maintain cash flow.
6. Ensure your customers are creditworthy. You may want to consider signing up for a credit service. While the credit reports entail a small fee, it is a small price to pay to make sure the customers you do business with are creditworthy and capable of paying you faster.
7. Maintain a good rapport with your customers. Believe it or not, I have seen cases where having a good relationship with your customers helps keep you at the top of their payment schedule.
Conclusion
Account receivables management is a very important component of effectively running your business. If you own a small business and find that this is something you struggle with, then following some of the strategies outlined above will help you get on track.
Learn more about factoring and Fast A/R Funding’s services by downloading our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.
