For running your business effectively you have to stay on top of cash flow. Review your accounts receivables i.e. customer's payments regularly. Do not make a mistake of mixing this specialized process with your bookkeeping.
Reviewing accounts receivable regularly not only helps in follows up collections using credit management tools but also helps you to service your customers more effectively and efficiently.
○ Improves customer service through instant, on-screen access to all account information, including outstanding invoices, sales orders and work in progress.
○ Supply/service to more credit efficient customer than to customer with poor payment history indicating financial difficulties on the part of the customer.
Managing accounts receivable on above two key points helps you to make yourself in business and mitigate strain on cash flow. Which otherwise means that better your customer payment s and better your vendor payments. Which leads to good credit worthiness with vendors.
In addition scheduled review of accounts receivable
○ Analyzes the profitability of each account
○ Early Identification of potential bad debts
○ Optional finance charges on overdue accounts
○ Gives the ability to fax customer statements
○ Provides average days-to-pay information
Reviewing accounts receivable can result in finding customers, who have maintained an excellent payment record.
When reviewing how accounts receivable affects your cash flow, the following points should be considered:
1. Do not let true "net 30" customer to stretch to 120 days customer and becopme accustomed to paying.
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First collect payments due, and before any additional work or product shipments are undertaken or future supplies for advanced payment should be received."
2. Occasional lapses in payment - there is a risk that the customer will go out of business without payment being made.
First collect payments due, and before any additional work or product shipments are undertaken or future supplies for advanced payment should be received."
3. Frequent requests to make partial payments -indicate financial difficulties on the part of the customer.
First collect payments due, and before any additional work or product shipments are undertaken or future supplies for advanced payment should be received."
In such instances, consider offering payment discounts or extended payment schedule based on the amount of payment due from customer even when such discounts are not expected.
Article by: Abhishek Mehta : Abhishek is working as Team Leader (Accounts Payables Team) with Actuit India. Outsource Accounting to Actuit India and concentrate more on your core business. For Details how you save by reducing cost by outsourcing please visit our website.
