Why you should manage accounts receivable, as a business owner

Before going on a rant about accounts receivable, let's take a moment to define it.  It has been defined as the money due from all customers for merchandise or services delivered on credit.  The total figure would be shown on the balance sheet as an asset.

Your business's accounts receivable are an important part of calculating your profitability, and provide the clearest indicator of the business's income.  If you are a business owner dealing with a negative receivables, then decisions must be made regarding how to increase the assets or reduce the liabilities.  

With not forgetting, accounts receivable are the livelihood of a business's cash flow.  Business owners must also keep track of them to have documentation supporting proof of income tax time. A critical aspect of cash management in a small business is collecting accounts receivable as quickly as possible.  If you decide to offer credit, then you will need to establish and enforce credit policies.  We have identified 6 tips every business owner should consider when trying to keep cash inflows and outflows moving smoothly.

• Use professional invoices, the details must be clearly visible
• If you send out invoices, be clear about payment deadlines (30, 60, 90 days due)
• Provide incentive for prompt payment
• Make it easy for customers to pay you
• Send customer reminders
• Accurate documentation is extremely key to the business and bookkeeper

The financial health of a business is dictated by the account receivable processes.  All clients may not make the payments on time but the percentage of such defaults can be mitigated by considering these tips.  Remember that clients who do not pay their bills are not clients.  These type of people should not be a part of your companies target audience or future marketing.  However, if you believe extending them another opportunity to work with you, ask for a deposit for the next order or insist on another form of payment.  

As a result of your business incorporating these tips, you will have cash flow to pay for your employees and vendors.  

Developing business policies and procedures are key elements to delivering a consistent and straightforward about your businesses expectations. Avoid the headaches and get started with policy changes that will protect your business cashflow.  You are a business owner in control - let your policies and procedures reflect it.  It's never too late to get started.

"It's failure that gives you the proper perspective on success." - Ellen DeGeneres