Controlling accounts receivable is a challenge for any small business owner.
You are so relieved and happy when you make a new sale and you send out an invoice. The problem is sending an invoice is only half the battle; you still need to get paid.
I don't consider a new client closed until funds have been received and cleared the bank. Managing cash flow is so important for a small business so you need to stay on top of it.
Controlling your accounts receivable is a great way to help maintain a healthy cash flow. Here are five ways to control your accounts receivable.
Establish Billing Policies
One reason accounts receivable balances get out of control are because billing policies are not communicated clearly to customers.
Whether you expect to be paid upon receipt or net 60 your customers are not going to comply unless they are aware. We make all customers aware of our billing policies and expectations in the proposal phase.
Another thought is to bill in advance for your services. If you are not comfortable with billing in advance you should at least collect a percentage of your bill before services are rendered.
Lastly, consider accepting credit cards and put your customers on automatic payments.
If you have a signed credit card authorization form to charge their card the amount due on a certain schedule you will definitely lower accounts receivable and increase cash flow.
This may sound obvious but you should send statements out on a regular basis for all accounts overdue.
If customers know that you expect payment by the 15th of each month then send a statement to any delinquent accounts on the 16th. I did this just this morning and within 30 minutes I collected over 15% our total accounts receivable balance.
Be sure to email statements and invoices directly from QuickBooks to ensure that you get paid as quickly as possible.
What happens when you receive an invoice? Most likely you just throw it in a pile or pending folder and get to it when you have time. The problem is you never have time.
If you are really responsible you enter it into QuickBooks right away with the correct due date and pay it on time. Most people are really bad about staying organized and paying their bills.
If you have overdue balances some people just need a friendly reminder.
Get in the habit of reviewing your accounts receivable on a weekly basis. This is just a healthy habit to get into and it should really help reduce your AR balances.
Additionally you are going to start noticing some problem areas. You may notice which customer accounts are really overdue and which customers you constantly have to remind about overdue balances month after month.
If you keep on your accounts receivable you should see dramatic improvements in your cash flow.
One reason that your accounts receivable balance may be high is because your service is crap. Think about it; don't you pay those service providers that do an outstanding job right away?
A lot of them are probably even set up to be paid automatically because they require to be paid that way. If some of your customers are always paying late there may be a reason for that.
Ask your customers if there are any problems with the services you are providing. Ask those customers that are paying late if there is a reason they are always late with their payment.
You will create awareness with those customers and they may adjust how they pay you. However, if some of your customers do have a problem with the service you are providing you definitely want to know about that and correct it quickly.
Fire Bad Clients
As crazy as this may sound it sometimes becomes necessary to fire a bad client.
No matter how hard you try some clients just won't work out well for your services. You may offer outstanding services but your client is always a hassle to deal with.
They might always be late, unresponsive at times, and constantly pay your invoices late. These clients are often inefficient for you to deal with.
They waste a lot of your time and therefore are a very costly client to maintain. If you find yourself in a constant battle to get paid even though you are offering outstanding service you may just have a bad client. It can be more profitable to fire bad clients and focus on obtaining good clients.
Accounts receivable may not seem like a big deal but it is the key to a healthy cash flow. A healthy cash flow is what keeps small businesses operating.
What accounts receivable challenges do you face?