Four Ways To Manage Account Receivables

An account receivable (AR) is a term used in accounting. It denotes a situation where a client buys your service/product but doesn’t pay for it right away. If your business is small or still in its development state, then it may get difficult for you if AR keeps piling up. An increase in the account receivable can create a significant cash flow pressure on your business. Some big retailers take from three to six months to make payment. It can affect your small business adversely by creating a stressful cash flow position.

Hence, it’s essential to incorporate a process that allows you to monitor and collect your receivables at the earliest. The account receivables management is crucial, and it will foster your company’s long-term success. There are financial solution companies like Business Backer that offer solutions like the purchase of receivables.

However, the following are four ways to manage account receivable.

1 – Set a Day Sales Outstanding target

Day sales outstanding (DSO) is a metric used for determining the effectiveness of a company at collecting receivables. Each business has different payment terms and requirements, and you should set your own that fits your business. It helps when the term is as low as possible, something like 15 to 45 days. Be careful as you set the term as it will hugely impact your business’s cash flow.

2 – Proper maintenance of customer data  

To maintain an effective account receivables process, you should centralize the master data process. It will ensure the accuracy of customer accounts and information. If you get the address wrong, then the invoice will get mailed to the wrong address, which will lead to late payments. That’s why the correctness of data is crucial.

Regular audit of customer data is a must. That way, you can check for unusual payment terms, discounts, credit limits, etc. Proper documentation of changes in customer’s data is necessary. And the data is better kept confidential and safe from unauthorized people.

3 – Having a credit policy helps

Account receivables management becomes easier and safer when you have a credit policy. You can set a credit policy for your business by considering.

  • Check the track record of the customer. You can calculate the risk by measuring the customer’s relationship and how much credit do they deserve.

  • The maximum amount you can credit depends on your company. You can figure the amount you can credit by considering the history of your company and the average of its transactions.

  • Stick to the policy you set, If customers need to meet a place financially and you have credit limits, then stick to it and avoid making exceptions.

If it’s getting difficult for you to cope up with bad cash flow, then consider contacting Business Backer. They have financial solutions tailored to small businesses.

4 – Keep in touch via call, e-mail

To ensure timely payments, you should call or e-mail the customers to confirm whether they have received the invoice. Ask them when you can expect payment from them. Call them again before few days of the due date of payment. Make sure that customers have everything they need, and so, the due date won’t slip away.

It is crucial that each invoice you send to customers is clear and does not miss any vital information. If you miss anything in the invoice, then it may lead to late or inadequate payment from customers.

To briefly conclude

Account receivables are the people who make a purchase from your company and don’t pay immediately. Such account receivables can hamper the cash flow of your company. The four ways mentioned above can help you manage your account receivables. You can also seek financial solutions from Business Backer.