Speed Up on Payment of Receivables
Receivables don’t have much value if they aren’t turned into cash, which means your company needs to keep tight control over its invoices outstanding so you can get an accurate picture of the receivables situation and take steps to improve the turnover of those accounts. As we come closer to the end of the year, we thought it would be good to share five steps that can help you speed up the receivable collection process and motivating clients to keep their payments timely:
- Conduct an accounts receivable “aging” on a regular basis, ranked by the invoice date, not the statement date. For example, suppose you ship merchandise with an invoice on the first of the month. Invoice aging will correctly show that, by the end of the month, the account is 30 days old. If you age your accounts according to the statement date, the report will incorrectly show that the account is current. Aging gives you not only a better handle on how long accounts are overdue but also the dollar amount of your company’s receivables outstanding. In other words, it gives you a good idea of potential cash flow problems.
- Regularly reconcile the accounts receivable ledger with the general ledger. When you mail monthly statements to your customers, reconcile the accounts receivable ledgers with the accounts receivable control account, which is the total accounts due balance from your general ledger. The beginning accounts receivable total, plus charge sales, minus payments on account should equal the ending accounts receivable total. Compare this amount to the sum of the individual customer accounts receivable ledgers. This will help reveal any errors in your customer statements before you send them out.
- Offer discounts for prompt payment, and be sure to keep tabs on which customers receive this incentive. Many companies continue providing discounts to customers whose payments miss the deadlines set for the special deals. This hurts cash flow and chips away at the bottom line.
- Give customers credit ratings and distribute those ratings to the appropriate departments in your company. This includes sales, customer service and data processing. If you revise a customer’s credit rating, adjust every department’s records accordingly.
- Train your sales force to accelerate collections. For instance, an associate can tactfully remind an existing customer of an outstanding bill before selling that customer another product or service. Consider giving your sales team the leeway to reduce late fees or past-due interest charges in exchange for payment on the spot.
Please comment below with any questions or if you’d like to share ways your company has been successful in getting clients to pay their bills by the due date or even earlier.