The Ins And Outs Of Accounts Receivables Management

Posted by Jeremy Waller on Mon, Oct 29, 2012

Accounts receivables management guidelines that drive successful businesses.In business, receivables are both a curse and a blessing. A growing accounts receivable balance means that you’re making sales, but receivables are just numbers on paper until you collect the cash.

Accounts receivable aren’t a bad thing by any stretch of the imagination, but unless you have a good accounts receivables management process in place, attempting to collect them in a timely fashion can turn into a nightmare.

Do you have set procedures in place for your business to manage your receivables? Do you have a checklist to follow when an invoice starts to age? Do you know when it’s time to pursue more aggressive collection efforts? Each of these criteria is part of the ins and outs of accounts receivables management.

Invoice Quickly, Collect Quickly

If accounts receivable are any meaningful part of your business, you need to make sure you have a good handle on how you bill and how you collect.

  1. Recording and Tracking Receivables – What’s the first thing you do when you make a sale? Your business should have a process that it follows every time. Part of that process should be recording the receivable and generating an invoice, and the sooner you do this the better. Why? The sooner you send the invoice, the sooner you get paid.
  2. Establish Standard Credit Terms – Your customers should always know when payment is due. Terms should be established up front and should be printed on every invoice. When possible, the same terms should be offered to every customer. When you have standard terms, you always know when an invoice is due.
  3. Offer Discounts for Early Payment – As an incentive for your customers to pay more quickly, consider offering a 1% or 2% discount if the invoice is paid within 10 days. The discount will cost you a little up front, but quicker collections may give you the ability to do more business.

When Good Invoices Go Bad

You can’t win them all. Occasionally, receivables go bad. Even with the best processes in place, there will be some invoices that you simply can’t collect. What can set apart a successful business from an unsuccessful one is how they approach this situation.

  1. Don’t Sell to Customers With Bad Credit – Whenever you bring on a new customer, the first thing you should do is evaluate their credit. There are a number of services that allow you to check how reliable another business is at paying on time.
  2. Maintain an Open Channel of Communication – An important criterion of accounts receivables management that many business overlook is keeping in contact with their customers. The best way to keep a customer with good credit from going bad is to find out about potential problems well in advance.
  3. Stay on Top of Aging Invoices – This goes hand in hand with keeping an open channel of communication. Don’t wait until an invoice is 60 days past due before you start following up on it. As soon as an invoice is past due, pick up the phone and make the call.

Using The Service Of Other Companies

Sometimes you simply can’t manage the entire process in-house. Many times it’s less stressful and more cost-effective to outsource part of the accounts receivables management process.

  1. Offset Risk With Credit Insurance – In the same way that you can insure the goods in your warehouse or insure against liability, you can get insurance for credit losses. Whether this is appropriate for your particular situation is a completely separate conversation, but it may be an option that makes sense to pursue.
  2. Sell Your Invoices – One way to alleviate many of the problems that come with managing your accounts receivable is to use a factoring program. This is an arrangement in which another company, called the factor, purchases your invoices. You receive cash for a portion of the invoice immediately and once the invoice is paid, you receive the balance, less a predetermined fee. This arrangement not only allows you to get cash immediately, but also offloads the task of credit evaluation, receivables monitoring and collections.

When you have a good accounts receivables management process, your business runs smoother. How you handle your receivables can mean the difference between headaches and stress or a healthy, successful business.

Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Download our informative “Factoring 101” guide, or call 888.833.2286 to speak with one of our small business finance consultants.

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