Even if your business is seeing constant sales and growth, ongoing cash flow problems owing to poor accounts receivable management can quickly stump your company’s growth, causing liquidity problems. Upgrading your a/r management strategy is long overdue, and what better time than the new year. Here’s how you can unlock your cash flow by updating your accounts receivables management strategy.
Calculate your A/R turnover rate and aging report
Determine the current payment status of all your accounts receivables as the first step in taking control of your collections operations. This is accomplished by establishing an accounts receivable (A/R) aging report, which will track and measure your clients’ payment status.
Invoice and collection efforts should be proactive
Make sure all parties are on the same page when it comes to payment deadlines, amounts owing, and payment methods are one of the most critical steps in assuring on-time payment.
You should also make it as simple as feasible for your client to pay their invoices. Make sure your invoices, are clear and thorough, with no missing information that could cause your client’s accounting department to reject it for additional inspection.
Get rid of past-due receivables as soon as possible
According to studies, the longer debts lies unpaid, the less likely they are to be collected. As a result, if you are aware of any past due receivables and can move swiftly, your firm will have the highest chance of collecting. Whoever you hire to handle accounts receivables should be aware that they must call the client the moment a payment is late.
Consider offering a discount for paying in advance
A 2/10, net/30 discount, which gives consumers a 2% reduction if they pay within 10 days instead of 30, is another approach to help manage accounts receivable.
“The industry determines this type of discount. If you work in a low-margin business where every dollar matters, a 2% discount might save your prospective client a lot of money “Dyer explained. “Offering and encouraging early payment is crucial and can be highly beneficial in enhancing cash flow if a business can afford it.”
Think about providing a payment plan
After a few payment reminders, a past-due client may inform you that they’re having cash flow issues and require an extension to pay their account. Consider offering the client a payment plan for their outstanding balance if this occurs.
Strengthen your client base
When it comes to accounts receivable collections, small businesses frequently get the short end of the stick, especially when doing business with major organizations that extend payment terms to vendors and suppliers for up to 90 or even 120 days. While dealing with huge stores can be rewarding, Dyer believes that diversifying your client base is essential.
Discuss cash management tools with your banks
Banks provide a variety of cash management services that can assist you in increasing collections and better managing your cash flow cycle.
Implementing electronic payments for your clients through Automated Clearing House (ACH) is one approach to avoid the “check is in the mail” excuse. This allows them to pay electronically and immediately boosts your cash flow.
Make it easier to accept payments by maximizing your cash flow
The easier it is for your consumers to pay you, whether by paper checks or electronic payments, the sooner you will receive your money. We can assist you in streamlining your collection process. To get started, please contact us.
