Your company’s cash flow depends on the balance between your accounts receivable and accounts payable. Unless your accounts receivable has a consistent cash flow, managing your account payable will be difficult. They are interconnected processes that form the backbone of your business. So, hiring a professional in-house or outsourcing the work is the best decision. Here are a few habits and practices to follow to improve your accounts receivable services.
Best Ways to Improve Your Accounts Receivable
Here are a few things you can do to improve your accounts receivable management and make sure your cash flow is consistent.
1. Improve your organizational skills
Your first step towards excelling in accounts receivable and cash flow management is to be organized about and record every single transaction. Be diligent about the different steps of processing accounts receivable, but above all, be picky about whom you extend credit as it can be disastrous if the client is unreliable when it comes to payment. Making accurate journal entries and subscribing to top-notch accounting software is the best way to set things right at the basic level so that accounts receivable can be properly managed.
2. Make an A/R Aging report
It is important to determine the current status of payment for all your accounts receivable. This must be done with the help of a A/R aging report created to track the status of payments from all clients. Accounts are categorized by the number of days since the invoice was issued in this report. It can be 0-30, 31-60, 61-90 and beyond 90 days, as well as the amount of money due. This way, it becomes easier to spot any problems regarding payment collections and to take the necessary steps before the due date is past.
3. Maintain a detailed record
Keep track of every email, conversation, and telephone call between your company and the client to estimate when to expect payment and decide the right time to generate the invoice. Having this information at hand also makes it easier to deal with any dispute that may arise regarding payments in the future. This also includes creating the invoice in a timely manner and sending them out regularly so that you get paid on time. Keep a thorough record of the invoices you send, and sent reminders before the due date to avoid excuses from late-paying clients
4. Late fees and early bird discounts
It is essential to get paid on time to keep cash flow consistent. Every business owner has dealt with clients who habitually pay late and must be coaxed and cajoled for their payments. To avoid such stressful fiascos, set the business terms such there will be a certain rebate for clients who pay within a time limit before the due date. Similarly, clients failing to make payments beyond the due dates will have to pay an additional fee. Strictly implementing such measures is another step towards making sure that the payments are received on time. Reward points, as well as surprise and exclusive offers to dedicated customers, are also great ways to make sure your customers willingly pay you on or ahead of time.
5. Have multiple payment options
Often customers and clients make the excuse that they are comfortable with a specific method of payment that your company does not accept, and hence they are unable to make payments on time. To avoid such issues, be open to as many different types of payment as you can. It can be difficult to keep track of all the modes of payment through which invoices can be cleared, and having a dedicated accounts receivable professional working for you can be helpful. You can easily outsource this work to a virtual bookkeeping company to keep track of all the payments you receive through different modes like cheques, net banking, e-cheques, and credit cards.
6. Stay professional in your approach
While a dutiful and polite reminder about the approaching due date is not a problem, as a business owner you must walk that subtle line between issuing a professional reminder and being downright nagging. Be careful about the language of emails reminding clients about payment, especially as it relates to how long the payment has been overdue. For many small business owners, their clients include friends or acquaintances whom they meet outside the professional arena. Be careful not to do anything to damage your personal and professional relationship, like reminding them about their pending payment over dinner.
7. Create an installment plan
When you have multiple clients with significant amounts of money due who do not seem willing to pay anytime soon, consider introducing an installment plan. It’s a great way to make sure you get at least a part of your payment and it maintains steady cash flow into your account. It is also seen as a favour to your clients who will appreciate your flexibility. This can burnish your reputation and earn you recommendations for new clients as well, since it is not a common practice among small or medium businesses.
Managing your accounts receivable can be a taxing job, especially as your client base grows. Eventually you will need a professional accounts receivable service. If you still do not have a dedicated team to handle the task, the above-mentioned tips and ideas can be helpful. Bookkeeping services are an important part of running a successful business and so should be managed by trained and efficient professionals.