Every company experiences a time when cash flow isn’t the best. Sometimes, companies get low on funds, and it’s not because their products and services are subpar or customers couldn’t avail themselves of them. Most of the time, the reason for this is because some customers haven’t paid their dues yet. In a case like this, it’s time to get ready to enact system changes and look for a way to improve the collection of your company’s accounts receivables.
First of all, what are accounts receivable?
Accounts receivable are payments for products and services that have not yet been paid by the customer. It is the amount of money that customers owe when buying a product or when availing themselves of a service, usually sent through an invoice.
What is an invoice?
Invoices are documents that provide details on the accounts receivable. They are usually made and issued by the product retailer or service provider, and they must be complied with by the customer. It usually includes which products or services were purchased, when, and how much is owed for them. In some cases, it also includes when the money owed must be paid by the customer
So how do we make sure that your accounts receivable improves our cash flow?
Each company usually has several accounts receivable, but if payments to these are not made, they may endanger the sustainability of the company as funding may not be available for the day-to-day expenses of the company. These expenses typically include salaries for its workers, rent for the office space, utilities, and the like. Making sure that these accounts receivable are fulfilled can mean that the company can continue its operations.
Here are some ways to improve cash flow through obtaining accounts receivables:
There’s no way around it—there will be no money to receive if the invoices are not issued to begin with. How will your customers know how much they will pay if they are not given enough information to begin with? Getting your invoice done in a timely manner is very important in making sure that the clients get to prepare their funds for the payment and pay sooner.
It is very important to keep a contract for which products or services you are offering and how much you must be compensated in fulfilling them. Getting the payment terms done in writing also means that you and your customer are guided on what to expect and by when. It is important for both of you to know what goods or services must be delivered by a particular date and how much must be paid to you within a given time frame. These details include how many times the customer must pay and at what installments the goods or services must be delivered.
Keep someone in charge of invoice management
It is highly important to keep someone abreast on making sure that the invoices are issued and that they are being fulfilled. Keeping someone in this position is highly important because they make sure that the company’s finances are running smoothly. This individual is usually placed in a company’s accounting or finance department.
Getting software to manage accounts receivable
You can get software that helps you manage your accounts receivable. Sometimes, software can really make the process of handling accounts receivable easier. It will allow you to keep track of your accounts receivable, as well as your products and services, better.
Consider Getting a Credit Policy.
Structure your accounts receivable by looking at the following:
Knowing how old invoices are will help you assess which customers you should follow up with and whose accounts you must prioritize. Unpaid accounts getting converted into paid cash will really make a difference for your company’s cash flow. Likewise, having an aging report will allow you to see which customers you may want to de-prioritize or stop offering services for altogether. This can allow you to make better credit policies.
For this, you can use the Collection Effectiveness Index, which is the calculation of a company’s ability to retrieve their accounts receivable from their customers. In other words, it measures how many of the accounts receivable have become paid to the company. This is important to see because it will give you an idea how much debt is owed to your company and at what rate it is getting paid. This can help in making better credit policies for your company.
Sometimes, it doesn’t matter if you issue accounts receivables on time or if you have systems in place—sometimes, what the customers need is a bit of pressure through a phone call or a visit. Sometimes, they end up not fulfilling your accounts receivable because they have other things to do, which is why it is important to remind your customers when their payments are close to the deadline or are missed.
The importance of getting your company’s accounts receivable settled cannot be understated. After all, the funds generated by your accounts receivable can help pave the way for future investments, among other things. Keeping a close watch on these numbers is a surefire way to keep your accounting balanced and your business honest.