MANAGING YOUR ACCOUNTS RECEIVABLE

All companies that are in the position of billing their customers and waiting to be paid have a similar challenge -- making sure their customers pay the bill. And sometimes getting the customer to pay the bill can be harder than performing the services they requested. On top of everything else you need to balance the objective of getting paid with maintaining your customer relationships.. When done well, accounts receivable management can make a big difference for any business, because it the key to survival and growth

Accounts receivable are money owed to your company by other companies who have purchased goods or services from you on credit. Realistically maintaining low accounts receivable is a difficult task, and yet plays such a vital role in the overall success of your company. On average, the accounts receivable can amount to 21 to 34 percent of company assets. Yet, it frequently becomes the "forgotten asset." Treat your accounts receivable as a use it or lose it asset, because that is exactly what it is.

There is a great deal to know about collecting overdue accounts but it starts with two simple rules. Even if you have someone responsible for doing the actual collecting, you as the business owner need to be aware of their progress (or lack thereof) on a daily basis. For most companies, collecting accounts receivable is the largest single headache. No one really likes to do it, and consequently they may end up neglecting it. But past due accounts receivable can be one of the most damaging drains on your cash flow, especially since they do not improve with age.

Your accounts receivable management is tied to your billing management. Document everything. Make sure you keep a detailed log of contact names, phone numbers, contact dates and times. Also keep track of past due bills, whom the bill was originally issued to -- everything that might help collecting on a bill now or in the future. Put together a comprehensive file on the accounting practices of each company you do business with. You do not want to have to duplicate your work later on for another bill. Your invoice should be clear, simple and accurate. The invoice should state explicitly, in itemized fashion, what it is for.

As soon as an account approaches or exceeds the terms agreed on, your customer needs to be contacted. And if at first you don't succeed in reaching them, try again. Contact them every day, if necessary, until you reach them. Once you make contact, be cordial, and explain the situation clearly but firmly.

Most times customers will not contact you if they think their bill is incorrect – they will just not pay the bill and wait for you to contact them to collect. Then, when you do contact them, if changes need to be made, most customers will request a corrected invoice and take an additional 30 days to pay. And the further they get behind, the more you have compounded the problem.

We recommend a three-stage procedure for collecting past due accounts. Having sound billing and collections systems in place has benefits beyond the increase in cash flow. A system that lets you track payments and see outstanding invoices at a glance for easy follow-up will reduce your operating costs. You enhance your relationships with your customers when you empower them by letting them know their account balances. You’ll have fewer billing disputes by giving customers itemized invoices, and by facilitating providing them their complete billing and payment history. This also projects a reassuring image of customer service that says "efficient," "professional," and "bigger than you thought"

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