Managing Receivables Can Help You Be Profitable
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To be successful in business you must be paid in a timely manner. If you're like most businesses, you sell on credit-asking your customer to pay an invoice within a set time, like 30 days.
During those 30 days you are essentially lending money to your customer, with the expectation that you will be paid back. It is only when that invoice is paid that you have the cash you need to 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. Ensure that customers deserve credit. If necessary, perform credit checks and require that applications for credit be completed before you accept orders. If the purchase amount is particularly large, you can ask for and review the customer's financial statements. Set limits for credit and then make sure they're stuck to.
2. Run aging reports and review them often. These reports help you understand the makeup of your accounts receivable balance, showing which invoices are less than 30 days old, 30 to 60 days, 60 to 90 days, and so on. Make sure you or your staff knows how to interpret the reports to spot problems early on. And assign someone to follow up promptly with late payers. The older invoices get the more difficult they are to collect.
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. Use rewards and penalties. Consider including an incentive for prompt payment, such as offering payment terms that provide a 2% discount for payment within 10 days. Your pricing schedule could also include a penalty fee for late payments. Be sure to stay within the limits set by law.
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: Articlelogy.com
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