Managing Receivables Can Help You Be Profitable

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Managing Receivables Can Help You Be Profitable

If you want to be successful in business, your customers have to pay you on time. If you're like most businesses, you sell products on a credit basis, and then ask your customer to pay you later, such as within 30 days. During this time, you essentially lend money to the customer, and expect that you are going to be paid back. Only when the invoice is paid do you have the money you need to successfully run your business.

Unfortunately, it's not always that easy to get paid. Almost every business has a customer or two who don't pay or who are slow paying. If you're not proactive and don't manage these receivables, you can quickly run out of cash. Here are some ways you can ensure customers will pay you on time.

1. Make sure customers are worth credit you give them and avoid customers that aren't. Before you accept orders, you can do credit checks and require credit applications. If the amount of purchase is big enough, you can ask for and receive financial statements. You should also set credit limits and hold to 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. Reward customers to pay on time or early and penalize those who don't. Include an incentive for customers to pay promptly, such as a 2% discount if payment is made within 10 days. You can also penalize late paying customers with a late fee. Stay within legal limits when you do this.

5. Moderate your growth. If you have a significant increase in sales, this can greatly impact your company's receivables and needs for cash. Utilize the advice of a seasoned financial professional. He or she can help you develop a plan for growth. You can consider additional financing, utilize a line of credit at the bank, or consider price adjustments. You may need to sacrifice some growth in the short term to make sure that you don't overshoot your ability to pay your bills.

When companies are successful, they are always looking for new ways to improve Accounts Receivable, because they know that if they do this, they can reap significant financial gains. If you have fewer outstanding balances, this can mean fewer bad debt write-offs and greater profitability. In addition, if your portfolio of receivables is well managed, this will help you boost cash flow and enable you to expand your working capital.

Article Source: http://articlenexus.com

Author: Margot Brandlin lives and works in Minneapolis, Bookkeeping with Owl Bookkeeping and CFO. Bookkeeping in Minneapolis with OWl allows her to provide the highest caliber of service to her clients.

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