Account Receivables Management is a financial process that helps companies to manage processes, track and collect all accounts receivables. The objective is to convert the receivables into cash as quickly and effectively as possible.
A significant part of any company’s asset is Account Receivable. It helps in generating cash inflow in the books of the company. It is a highly crucial thing because the company’s future cash flow is affected by it. The company offers a credit facility to the customers to ease the transaction process and establish a strong credit relationship with the customer. It helps in getting much better deals for the company. It helps to attract investors because an investor will be able to check the company’s collection efficiency and become interested in investing if it is a good record.
Account Receivables management can make or break a business. When there is a delay in the payment from the customer’s end, a company will probably be a few bucks away from a cash flow shortage; that is when more money flows out than the amount of the money flowing in. Eventually, the business is unable to pay its own bills and carry on its function smoothly.
Experts have agreed that about 90% of the businesses shut down suddenly are because of faults in their cash flow system. Mismanaged accounts receivable most of the time causes these devastating cash flow shortages.
Avoid such type of mishaps is essential for every business; hence they must efficiently manage their accounts to improve the working capital and avoid any disastrous cash flow shortages.
Every business wants to buy low and sell high. Moreover, they risk losing everything with poor accounts receivable management in the last stage, that is, payment. More than half of the cases of bankruptcies have occurred due to a poor command over account receivables. It involves more than just even reminding the customer to pay on time. It also consists of revealing and finding out why the customer has not paid and also the loopholes in the system because of which the customer has skipped the step.
Even though these might look like very common practices, a surprising number of businesses do not follow some of the basic guidelines. So we have made a list as follows:
Do not extend credit to just anyone:
You need to run a credit check and verify a customer’s identity in the credit marker before agreeing to do business. Most corporate customers have credit accounts of their own and provide all the necessary information before doing business without much ado. It is even okay to deny credit or to ask for the payment upfront.
Get a Personal Guarantee:
While doing business with a corporate client, it is essential to ask for a personal guarantee on your credit agreement. This covenant will confirm the relationship authenticity and make sure that the payment is completed from the customer end on time.
Written Payment Terms for First Order of Business:
Before the commencing of business with a new customer, it is necessary to put all the payments in writing. Inform the client adequately about the total time they have to pay the due amount, interest terms, details regarding the late fees, etc.
Send Invoices Promptly:
Moreover, this point is skipped or not given high importance. But if the customer does not receive the invoice on time, then you cannot expect the payments on time. An automated process to streamline sending invoices on time and sending documents more promptly is essential.
Offer Easy Payment Options to the customers:
Statistics say that customers will typically pay twice as fast if offered convenient and easier payment options. Nowadays, mobile payment has now become a very viable payment option with an increasing user base. Platforms like FetchMayPayments will fetch the business faster payments because of their convenience.
Closely Monitor Payments as Received:
Go through the receivable accounts daily to keep a tab on all the payments. Point out the discrepancies and report the same.
Plan for Past Dues:
A strategic approach to deal with the customers who have due payments and are past the due date. Consider all kinds of criteria like how many days past the due date will the late fee be charged, how much interest to levy, or how to let the customer know about all the information, with the help of an email, call, or any other related things.
Consistency with Rules:
You must stick to your plan for managing the account receivables. Changing the treatment, according to the case, will only harm your business. Taking the steps that you have pre-planned for each situation will help to simplify your task a great deal and improve customer adherence.
Know When to get rid of a Customer:
If any customer is habitually late in making payments, they are more harmful than good for your business. Calculate your risk which is being involved in future non-payment and non-compliance with the customer and take the necessary steps accordingly. Weight the cash flow risks and see the costs which are being involved against the relationship’s potential benefits with the customer. At this juncture, it is essential to end the relationship with the customer simply. Moreover, if it is not easy, consider reducing their credit limit or demanding full payment upfront.
Good receivables management will directly contribute to your business profit due to its ability to reduce bad debt. The benefits include a better cash flow and higher availability of liquidity for your business acquisitions and investments. Furthermore, proper accounts receivables management will help to boost your company’s image in the market. The three main elements of managing accounts receivables are collections, monitoring, and invoicing. Any business should make sure that these steps are checked while carrying out its business and other functions to provide a stable future.