Having your accounts receivable running like a well-oiled machine is essential. When money’s coming in, operations can continue, and you have money to grow. When payments slow or stop, you’re left with fewer options. Unfortunately, many companies struggle to keep their accounts receivables moving fluidly, but there are ways to streamline the process to ensure the business has cash on hand and continues to remain profitable.
Slow or Stalled Accounts Receivables Hurt Your Business
You likely deal with accounts receivable in your personal life, too. For example, if you and a friend agree to go to a sporting event, you pick up the tickets, and your friend says he’ll pay you back for his. This goes smoothly if your friend does what he says he will. Because you’re short on cash, you may not be able to get refreshments at the game, and you might not be able to pay your own debts (which is twice as bad when you’ve charged the tickets to a credit card), or you might spend all kinds of time following up with your friend asking about his payment. You also probably know that the longer it takes for your friend to pay you back, the less likely he will. The exact same things happen with your business when your clients don’t pay you for your work promptly.
Accounts Receivable is a Four-Legged Chair
Your accounts receivable process consists of four main areas: policies, invoices, tracking and accounting. You can have issues in any one area, and it will make your whole process wobbly, just like removing legs from a chair (or wheels from a big rig) will. It can even cause your business to topple.
Many small-business owners don’t consider this, but when you’re invoicing after you’ve delivered goods or services, you’re actually issuing credit. You’re trusting the other company to do the right thing and pay you promptly. Banks don’t issue credit without specific terms, and you shouldn’t be doing so without precise guidelines either.
A few things to consider when setting strong policies are:
- Creating criteria for credit, including maximums based on worthiness
- Giving clients shorter periods to pay, such as 30 days versus 60+
- Establishing penalties for late payments and non-payments
Time and ease are key when it comes to physical invoices. Many small business owners are still using spreadsheets or handwritten log books to keep track, then sending invoices out by mail at the end of the month. This adds to unnecessary delays in simply sending invoices, let alone getting paid.
Some best practices for invoicing include:
- Going digital
- Using automation
- Sending invoices immediately after delivery of services or goods
You should be able to tell where all clients are at in the payment process and be able to effortlessly send out reminders to those who have a due date approaching or who have fallen behind. Chasing money is costly.
A few things to make tracking easier include:
- Using a customer tracking system
- Tapping into reporting tools
- Automating reminders
Lastly, processing payments and keeping the books updated are essential. Depending on the processes you set, this job alone can take hours out of your day or be effortless.
Make accounting straightforward by:
- Accepting electronic payments
- Using specialized software
- Outsourcing the process
Work with a Factoring Company to Streamline Your Accounts Receivable
Factoring companies streamline the accounts receivable process by empowering you to leverage invoice factoring. By selling your invoices to a third party, you can eliminate some or all the issues businesses face when trying to collect for work you’ve completed. You receive payment for the invoices promptly and we make sure the rest is taken care of. To learn more, download our free factoring guide.