Understanding how to effectively manage account receivables of your business is very important to your business success. Because, when it comes to running a profit organization, cash flow is a critical factor. Accounts receivable management is one of the most important aspects of proper cash flow management. Studies have revealed that many firms, especially small businesses, have difficulty collecting money from clients.
So, this article explains tips on how to effectively manage account receivables of your business in 2021.
How to Effectively Manage Account Receivables
How do you manage accounts receivable? Here are a few tips to help you collect payments from customers as efficiently as possible:
There are so many things that are done electronically in today’s modern environment. As a result, invoices will not be lost (in the mail or otherwise). In addition, it’s easier to get a confirmation that the invoice has been received by the customers and that they want to pay it.
Check your Receivables Often
It is possible to track the aging of your accounts receivables in any accounting program that includes this feature. Another tip on how to effectively manage account receivables is to check this frequently (at least once a week), paying specific attention to quantities over thirty days. Anyone nearing their due date but not yet past due should be reminded.
Emphasize the payment conditions
Keep the payment periods short! Previously, due to mail delays or paper processing processes, it was typical to wait a longer length of time for payment to be received. Now that we have electronic efficiency, it is more frequent to see “Payment due upon receipt” written on bills.
Provide a variety of payment methods
When it comes to electronic payments, firms such as PayPal and TelPay have made it easier than ever before. Electronic payment services are offered by the majority of banks. This enhances accounts receivable management. The use of credit cards is likewise quick and easy, although some people still prefer to pay by check. Make sure you know how your customers want to pay so you can alter your expectations of how long it will take for a payment to arrive. As a result, it will be easier to determine how often follow-up communications should be delivered.
Maintain good relationships with clients
Invoices will be paid on time if the clients are happy with the service. Your business’s obligations must be met and personal relationships must be built with each customer. Also, be in mind that unusual circumstances can sometimes cause payment delays. People will be more inclined to collaborate with your business in the future if you are aware of these scenarios.
Create a Credit Policy
Another way on how to effectively manage account receivables is to keep current receivables by knowing your clients’ ability to pay. Therefore, when giving credit to new customers, offer tiny amounts of credit or check references for previous clients. Another option to enhance your account receivable management would be to shorten your payment conditions and express them clearly with the invoice delivery.
Take a call
Speak to the person who owes you money in a pleasant manner. Speaking with someone can help you have a better understanding of their situation in a short amount of time. Discuss payment choices, such as post-dated checks or a series of payments. A collection agency may be a better alternative if the person refuses to speak with you, knowing that you’ve explored all other options.
Last resort: Hire a collection agency!
The last resort on how to effectively manage account receivables is to hire a collection agent. Collection agencies should be used when you are having trouble collecting money from a client. This type of agency is notorious for its aggressiveness and for charging for its services (usually the client). Even then, it would only be a last-ditch effort. Even though your client may not be pleased with the notice from a collection agency, they are likely the kind of consumers you don’t want to deal with again.
When to Write off a debt
However, if you have tried all the possible ways to collect your money from a customer but proved abortive. You may need to write off the debt as a bad debt. Bad debt simply refers to the debt that is irrecoverable from a customer or customers. It simply means owing or outstanding that will not be paid by customers. Since you have recognized the income in your financial statements, you have to write off the debt as a deduction. However, any invoice that is remained unpaid between 60 to 90 days is like going to be written off.
In conclusion, you need to develop ways on how to effectively manage account receivables, because it is very vital to the success of your business. Meanwhile, accounts receivable management should be straightforward if it is done regularly. Keep in mind that there are a few particular variables that apply in different industries to maintain a healthy cash flow to keep your business alive. Accounting software such as QuickBooks Online can enhance the accounts receivable management of a company.
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Afeez is one of the founding partners of Marasas Consulting limited. He consults for both individuals and entities in the area of accounting, management, audit, tax, and investment. He has a wide range of experience both online and offline which allows him to provide relevant and timely professional advice and assistance to business owners with their accounting, tax, management, audit, and investment plans.
Afeez is a member of the Institute of Chartered Accountants of Nigeria (ICAN) and a member of the Nigerian Institute of Management (Chartered). He is a certified Google analyst and strategist. He earned his Bachelor degree in Management and Accounting from Obafemi Awolowo University, Ile-Ife, Nigeria, and earned an ordinary national diploma in Accountancy from The Polytechnic of Ibadan, Oyo State, Nigeria. He earned certification in “Excel Crash Course” and “Reading of Financial Statement” from Corporate Finance Institute, Canada.
Afeez is dedicated to helping clients achieve business success by helping them to establish solid and sound accounting, tax, and financial processes.