It goes without saying that working with numbers and understanding how to interpret them, is a key part to managing a business.
When you sell a product or service and generate a dollar of revenue, that economic exchange is captured through either the receipt of cash or through selling “on account”. When you sell “on account”, you create Accounts Receivable which is revenue earned, but not yet collected in cash.
If you think about it, you have actually used Accounts Receivable your whole life. If you’ve ever earned a paycheck, you’ve used accounts receivable: just think, you performed work for your employer and you were paid, most likely, weekly or twice a month. You have performed work for your employer and weekly or twice a month, you are waiting to be paid for those services performed.
When in business, at a high-level Accounts Receivable is important because it affects your cash flow. It matters because it is always important to keep inflow greater than you outflow, but Accounts Receivable is sort of part a no man’s land between inflow and outflow. This is why, in the beginning of starting a business and definitely before making sales “on account”, the terms of repayment need to be outlined and explained to your customers. The typical payment cycle for goods or services ranges 30 to 90 days.
Accounts Receivable should be best managed on a consistent and routine basis. Regardless of your software or system, a process should be developed and implemented to ensure timely payments is the business overall expectation. This expectation should be known not only by customers but your support team as well.
Inconsistent and spotty attention to the task can starve a businesses’ growth, while a steady and smooth process results in a business foundation capable of achieving all of its goals.
Has this aspect of your business become overwhelming? Would you like to develop a new Accounts Receivable policy? Schedule a free consultation with us.
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