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How to Better Manage your Accounts Receivable

Business Loan Articles > Article: How to Better Manage your Accounts Receivable

On the surface, the process of accounts receivable seems to be cut and dry. Yet, many companies have a tough time keeping the system working smoothly and are always struggling to receive payment on their outstanding invoices.

Often the problem is a small one, a simple tip or idea that they have missed along the way.

Here are some of the top ways to make your accounts receivable program more effective:

• Set Terms and Stick to Them - The customers that owe you money need to know you mean business when it comes to collecting the funds owed. Make sure you have a system set up in writing explaining the terms of the payment plan and that you expect payments to be delivered in a timely fashion. This is best suited to be on their contract and invoice so they are clear about the policy you plan to enforce.

• Create a Collection System - The more concrete your collections system is, the easier it will be for you keep up with what is owed and make sure you are taking the appropriate actions. Decide how many days after the due date you will call, send a letter and take other actions, in an attempt to receive payment. Then sort your invoices in a manner where they will be easy to access when it comes time to make those follow up calls and mailings.

• Bill The Right Place - While the person you talk to and work with in a company may know everything about the project you are working on, they may have nothing to do with the money side of the company. Sending them the bill may be slowing down the process of getting paid. When it comes time to send out a bill through accounts receivable it is important to make sure the bill is going to the right person. In addition to checking the business address, double check the contact and department information so you can get your invoice to the person who will be able to put money in your hands.

• Offer Numerous Payment Options - We are in a world filled with payment options for business transactions. Don't limit your ability to take in receivables just because you are limited in the payment forms you accept. Instead, have as many payment methods as possible in use. This could include cash, check, PayPal, direct deposit and credit card payment capabilities. Many of today's small business owners love to use credit cards because it gets them frequent flier miles or other perks from their credit card company.

• Speed Up the Process - If you already have an accounting system in place for your business, why not use this to keep your accounts receivable in line. Many of the commercial financial software packages offers a way to set up all your accounts in the same system. Once they are recorded, it is a simple push of a button to see who is due to pay, and who is overdue, without digging through bundles of papers.

• Discounts and Fees - Every day a payment is early is another day that you have cash in hand to put into your business. This is very important in a high-paced business world. For this reason, many companies offer discounts to customers who pay their bills early. Offering this to your customers may make things easier for you, as payments come in on time, or before and you do not have to chase them down. On the opposite side of this coin are late payments. Every day a payment is late is a day you do not have capital in hand to grow your business. You should institute a late fee onto payments that are extremely tardy. Most businesses offer a grace period, but then tack on interest for additional tardiness in payment.

• No More Mr. Nice Guy - Many people try to be nice and let customers 'float' a little when they fall behind in payments. You need to set a limit and stick with it. While it may feel mean to say 'no' to a customer, this is better than spending more of your time and resources on them and not getting anything in return.

No one likes having money out of hand in business. Money you are waiting for is money that can't be used to make more money. The key to accounts receivable is creating a system that is solid, efficient, and sticking to the plan you have created.

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