Unpaid receivables can substantially reduce the efficiency of even the most profitable businesses. In many cases, overdue accounts are basically an interest-free loan to the client and the business could be missing out on interest earned (or saved if the business has debt) on the account. There can also be serious implications for cash flow as it can take a long time to get an account finally paid by a client. Below are three tips to help you manage your accounts receivable.
1. Set up the right system
It is vital that businesses plan for, and build systems to manage their receivables. However, keep in mind that the system isn’t about how receivables should work, it’s also about what happens when an account is overdue, or a client refuses to pay. Build a system that can help you manage when things go right, and when they go wrong. By doing this you take a proactive stance to your accounts receivable. Plan things like how often you will call overdue clients, what communication methods you will use, and what you will do if a client refuses to pay.
2. Keep your finger on the pulse
Once you have a system in place, make sure that you keep tabs on the data to make sure your system is working. Things to check for include: average days overdue, size of overdue accounts, repeat offenders, clients who are always on time. If you really want a shock, work out how much your overdue accounts are costing you per year – it will really get you moving to ensure payment!
3. Use your accounts receivable as a positive
It can be tempting to look at your accounts receivable as a negative. There are a number of ways however to harness the power of your receivables. Many companies are able to use a variety of options such as invoice financing, debt factoring, or other small business loans and unlock the capital in their accounts receivable column. It may be worthwhile to investigate what solutions might work for you.