Tracking receivables is an important part of managing your small business’s cash flow. Without a steady cash flow, many small businesses are pushed to borrow more money to meet their working capital needs. This practice can easily catch up to small businesses and can result in business failure. Having an organized and professional system for keeping track of accounts receivable should help ease the process for you and will help your business succeed.
When setting up your accounts receivable process, consider the following tips to maximize the success of your small business:
1. Create an Invoicing Policy
Though it does vary from business to business, generally, the faster you invoice, the faster you will get paid. Therefore, when setting up your accounts receivable department, be sure to decide when you’ll invoice, and communicate these invoicing terms to customers and clients to prevent discrepancies around when payments are due. Additionally, Inc. columnist Jayson Demers recommends the following when it comes to creating a policy:
“Your policy should outline how late payments will be handled, including service charges at set intervals. Each state has its own regulations, but in general this is charged as a percentage of the total due.”
If you want customers to pay early, consider giving discounts to clients who send their payments within 10 days of receiving your invoice. Your invoice policy should be ironed out ahead of time in order to avoid confusion and create a healthy cash flow for your business.
2. Keep Tabs on Slow-Paying Clients
It’s important for whoever is monitoring your accounts receivables to keep an eye on slow-paying clients. Track payment schedules for your regular debtors and know when they tend to come up short. If a certain client is regularly late, it might be a good idea to schedule a meeting with their accounting department. In this conversation, ask them how you can help them to be more consistent in making payments to you. In some cases, it may be as simple as shifting a payment schedule to an earlier or later date in the month.
In other cases, their answer may make you re-evaluate your relationship with that client. According to Forbes contributor Nellie Akalp, one good practice for dealing with late-paying clients is to “have at least two to three months of ‘safety funds’ for your business, so a client’s slow payment doesn’t impact your ability to pay your bills.” Keeping the communication lines open with your clients will help streamline your accounts receivable processes.
3. Use Invoicing Software
An accounts receivable department that only consists of an Excel spreadsheet and invoice letters will make it impossible for you to keep track of who owes you money. In order to create a streamlined accounts receivable process it will do you good to use accounting software. Software can simplify the receivables process and give you the ability to forecast future cash flow. Online invoice generators such as Viewpost can help streamline the management of billing accounts receivable, so more of your time is available for leading and managing your business.
Whether you’re an experienced entrepreneur, or are just beginning your journey as a small business owner, setting up an accounts receivable department can prove daunting. However, spending a small amount of time creating an organized invoicing and billing system can go a long way in making your businesses successful in the long run.