Managing your accounts receivable is serious business
Your accounts receivable represent the money your clients or customers owe you. Your ability to manage your accounts receivable will strengthen your cash flow, helping you to meet your need for working capital without borrowing.
Track your accounts
Businesses have different ways to manage receivables, including accounting software, but some elements are generally common:
- Record daily sales and receipts
- Generate customer invoices and monthly statements
- Track customers' current and past-due balances
If you extend credit to clients or customers, have a credit policy and stick to it. Some points to consider:
- Does your business accept checks and credit cards?
- How and when will customers be invoiced?
- What are payment terms?
- Are there incentives—such as discounts—to customers when they remit their full payment immediately or promptly?
Identify delinquent accounts
When customers pay your business slowly or late, it puts pressure on business cash flow, in some cases even creating a need for you to borrow to make up for the shortfall. Review accounts receivable monthly and categorize them as current or past due 30, 60, or 90 days or more. These are delinquent accounts. Send regular statements to clients that will serve as reminders to those with late payments and to provide documentation in case an account goes into collection.
Prevent overdue accounts
Businesses are advised to purchase a client’s credit history before awarding significant credit. To speed timely payment, a business may stamp invoices with the date that payment is due, start trying to collect the day after a payment is due or consider declining goods or services until the customer pays.
Approach collections seriously
Some tactics for successful collecting are:
- Begin collection early
- Get the customer to commit to a specific date and time for payment
- Follow up regularly
- Offer to pay for overnight shipment of the client’s check.
- Ask for the check number if they say the check is “in the mail.”
- Require payment in certified funds such as a money order if a customer’s check to you has ever “bounced” or been returned.
- With a serious delinquency, consider initiating collections procedures and even court action, if necessary