Your company relies on its account receivables to sustain the cash flow and pay for the necessary business expenses. What would happen to your company if you had customers that were notorious for late payments or customers that just didn't pay their bills? Waiting on your customers to pay their bills may not be an option for your business as you need to have the money to pay off your business debts and other things.
The problem you will face with your account receivables is the fact that you need to have the money as soon as possible or you won't be able to pay for your other business needs. If you cannot pay for your business needs, your corporate credit rating will start to dwindle and you may struggle to acquire any type of financing for your business in the future.
If you are like most companies, you allow your customers 30, 60, or 90 days to pay for your invoices. Giving your customers time to pay their invoices can be a good thing as it allows you to strengthen your relationships with them by offering flexibility with their payments. The downside is that customers may take too long to pay their invoices which leaves you struggling to meet your payment obligations to your lenders. When your cash flow is tied up, you cannot pay for the essential equipment and supplies you need in order to provide your customers with the supplies you need.
Having too much money tied up in your invoices causes you to turn away potentially larger orders. These orders can offer your business a chance to grow and expand into the future and if you need to turn them away all the time because you don't have the cash reserves available to purchase the raw goods to manufacturer your products, you won't be able to last long in your industry.
One option you may have with account receivables is to start requiring your customers to make their payments up front. If a customer doesn't have the complete amount of money to pay for the invoice, you can ask them to make an initial down payment at time of service and then enroll them in an automatic payment plan. This way you will ensure that you will get all of the money from the customers as you are scheduling payments to come out of their account and directly into yours.
It is also common to consider using a factoring firm to manage your account receivables. They will be in charge of the invoices by providing you with an initial payment amount up front, usually about 80% of the invoice total. They will then assume responsibility for the invoices by working with your customers to acquire the money. Once the customers pay their invoices, you will get the other 15-20 % left from the invoice. Their fees are usually minimal and the service they provide is well worth the hassle you would need to otherwise face trying to collect the funds on your own. They will not work with customers that have a reputation of missing payments so it is important to have high quality customers to work with.
Accounts receivables are extremely important to the overall financial wellbeing of your company. You must implement a system that will help you acquire the money from your customers in a timely manner. Use a good accounting program like QuickBooks as it will generate the invoices for you and send them out to your customers directly for you. Provide your customers with multiple payment options as this gives you a chance to provide them with additional payment arrangements and be known as a good company to work with.
Corporate Credit Concepts specializes in account receivables. For more information about account receivables and how it might benefit your business, please CLICK HERE for a free phone consultation.