Because cash flow is the lifeblood of a business, managing money and accounts receivable play a very crucial part. If you are not making solutions for cash flow issues, this could slow and stop your company’s growth – no matter how steady your sales are
We can say that many small business owners who are struggling with cash flow have their account receivables poorly managed.
Instead of using the cash from sales, business owners and companies are forced to use money from their reserves and business finances which are intended for other purposes. If this continues to happen, the business operations will be affected and worse, shut down the business.
A business should have prepared solid policies and procedures that meet the cash flow crisis. Ignoring cash management and focusing only on marketing and sales can take a toll to the business.
To avoid this mistake and the risk of bankruptcy, here are the effective ways to manage account receivables:
1. Set Payment Terms Clearly
Whether you are providing a service or selling a product, you need to set payment terms clearly. This should be stipulated on all invoices. If you are selling products, the normal options are COD (cash on delivery) cash prepayment before delivery, Net 7, Net 30-90, or cash account.
Other options include EOM (end of the month) and bi-weekly which are commonly used for charging services. Letter of Credit and Bill of Exchange are payment options which are confirmed and supported by the bank. Setting payment terms depend on the credibility of the buyer so it is your job to check his credit history.
2. Offer Multiple Payment Options
Not all late-payers don’t have money to pay for how much they owed you. In many cases, this is due to the lack of payment methods to pay you. As much as possible, make it easy for them to pay you promptly. Offer multiple payment options not just cash or check. Consider PayPal, electronic funds transfer (EFF), credit cards, Stripe, and many others. Utilizing modern ways to make payments will eliminate potential delays.
3. Offer Early Payment Discount
Instead of waiting for the customers to pay you on the agreed period, why not attract them to pay you sooner with a discount? Offering incentives to your customers if they pay early will encourage them to be aware of the amounts due. Of course, you would consider your business finances first before offering a discount.
If you are in a tight margin, it could cause you a loss. But if not, giving discounts can boost your cash flow. Example of a discount is 2%/10 Net 30 where a customer gets 2% discount if he pays the balance in 10 days instead of 30 days. You can enforce penalties for late payments too. Doing this can make customers aware of their accounts, encouraging them to become responsible payers.
4. Process Electronic Invoicing
You can still do the manual invoicing process but sending those paper mail has higher risks of possible delays. Learn to utilize technology. Sending invoices through emails and apps make it easier for your customer to receive it. Sending timely invoices helps your customers to prepare the payment for the due date stipulated.
With technology, you can track whether your client has received and opened the mail. Paper-based bills can easily get lost in a shuffle while electronic invoicing can keep records of customers receipts of invoices and payments in place.
5. Call Late Payers
You’ve sent those paper-based bills and waited for weeks and months and still with no signs of payment from your customer. Chances are they may not have enough cash or they just completely forgot to pay the invoice. Emails can get lost in spam folders and those snail mails too. Doing a phone call is an effective idea. Don’t assume that this is awkward but you have the right to call them. Once you call them and remind them of their balance, they will be more aware of their debt and it will oblige them to pay the amount they owed.
6. Outsource your Company’s Account Receivable Management
Managing accounts receivables can be a tedious job. It requires a serious amount of time and effort. If you pass this task to your employee who has a different workload and responsibility, there’s a big chance that he can’t process it properly.
To reduce workload and risk of errors, outsourcing it to a bookkeeping company like Act Bookkeeping Group might be a great option. Having a reliable team who consistently manages, reviews, follow-ups, and monitors your account receivables and financial transactions will save you time and help your company to operate efficiently.