Manage Receivables For Better Profitability
Author: MargotBrandlin Total views: 56 Word Count: 485
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.
It's unfortunate that sometimes, getting what you're owed isn't always as easy as simply giving the customer an invoice. Almost all businesses have customers who don't pay or simply pay slowly. If you don't proactively manage your receivables, you can quickly deplete ready cash. Here are some ways you can protect your company from delinquent accounts and late payments.
1. Make sure your customers are creditworthy. Perform credit checks and require credit applications to be completed before accepting orders. If the purchase amount is large enough, you can even ask for and review financial statements. Set credit limits and enforce them.
2. Run aging reports and take a look at them regularly. Aging reports will help you know what the makeup of your accounts receivable is, and show which invoices are less than 30 days old, then those that are 30 to 60 days old, 60 to 90 days old, and later. Make sure you know how you should interpret these reports so that you can spot problems early. Have someone specifically on staff to follow up with late payers. As invoices get older, they become much more difficult to collect on.
3. Send out invoices immediately. The sooner invoices go out, the sooner payments can come in. Your bills should also be detailed, clear and accurate. The more detail you include, the less likely it is that a customer can dispute charges.
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. Monitor your growth. If you have a sudden significant increase in sales, this can greatly impact your company's receivables and cash needs. Use the advice of a seasoned professional to develop a strategy for growth. You might want to consider additional financing such as a line of credit from the bank, or consider adjusting your prices. You may need to deter growth short-term to make sure that you don't outpace your ability to pay your own bills.
Successful companies continually seek new ways to improve their accounts receivable function because they know that improving the process can lead to significant financial gain. Fewer outstanding account balances mean fewer bad-debt write-offs and enhanced profitability. And a well-managed portfolio of receivables can boost cash flow and expand working capital.
Article Source: Credit Card Bad Credit People
About the Author
About The Author: Margot Brandlin writes in Bookkeeping in Minneapolis with Owl Bookkeeping and CFO allows her to provide the highest caliber of service to her clients.
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