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Managing Your Accounts Receivable
All companies that are in the position of billing their customers and waiting to be paid have a similar challenge -- making sure their customers pay the bill. And sometimes getting the customer to pay the bill can be harder than performing the services they requested. On top of everything else you need to balance the objective of getting paid with maintaining your customer relationships. James A. Sherman, CPA says, “Accounts receivable management is key to survival and growth.”
Accounts receivable are money owed to your company by other companies who have purchased goods or services from you on credit. Realistically maintaining low accounts receivable is a difficult task, and yet plays such a vital role in the overall success of your company. On average, the accounts receivable can amount to 21 to 34 percent of company assets. Yet, it frequently becomes the "forgotten asset."
There is a great deal to know about collecting overdue accounts.
Be Consistent.
Check your aging reports daily.
Even if you have someone responsible for doing the actual collecting, as a business owner you need to be aware of their progress or lack there of on a daily basis. Most people do not like doing collections and consequently they may end up neglecting it. Treat your accounts receivable as a use it or lose it asset, because that is exactly what it is.
Accounts receivable do not improve with age.
As soon as an account approaches or exceeds the terms agreed on, they need to be contacted. And if at first you don't succeed in reaching them, try again. Contact them every day, if necessary, until you reach them. Once you get a hold of them be cordial and explain the situation.
Document everything.
Make sure you keep a detailed log of contact names, phone numbers, contact dates and times. Also keep track of past due bills, whom the bill was originally was issued to -- everything that might help collecting on a bill now or in the future. Put together a comprehensive file on the accounting practices of each company you do business with. You do not want to have to duplicate your work later on for another bill. When done well, accounts receivable management can make a big difference for any business.
Your invoice should be clear, simple and accurate.
The invoice should state explicitly, in itemized fashion, what it is for. Most times customers will not contact you if their bill is incorrect – they will just not pay the bill and wait for you to contact them to collect. When you do contact them and if changes need to be made, most customers will request a corrected invoice and use an additional 30 days to pay. This costs your company additional time and means it is even longer for you to get paid.
”For most companies, collecting accounts receivable is the largest single headache. No one really likes to do it. But past due accounts receivable can be one of the most damaging drains on your cash flow,” says James A. Sherman, CPA. And the further you get behind, the more you compound the problem.
If you are unable to collect within 7 days past the due date, you might consider outsourcing accounts receivable. I suggest first starting with an intermediate 3rd party for accounts that are 30 to 90 days delinquent. This intermediate 3rd party has the best interest in mind for your business. Their fees are much lower than collection agencies and still much more effective than managing in-house.
Sherman says, “At Advocate, we office this service to our customers because we want our clients to receive the earned cash flow that is needed to bring their business to the next level.”
If unable to collect using the intermediate services, promptly submit the claims to a collection agency. The down fall with using a collection agency is there are high fees (usually 50 percent of the amount collected plus miscellaneous fees). The bright side is after 90 days of missed revenue, some revenue is better than no revenue. Outsourcing
Past Due Accounts Receivable allows you to:
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Receive payment faster regardless of how you deliver your invoices
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Increase cash flow
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Empower your customers by letting them know their account balances
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Reduce billing disputes by giving customers their complete billing and payment history
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Reduce operating costs
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Project a reassuring image that says "efficient," "professional," and "bigger than you thought"
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Track payments and see outstanding invoices at a glance for easy follow-up
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Improved customer service
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