Every small business requires strong cash flow to be able to function effectively and handle needs such as company payroll, acquiring inventory and equipment, and providing standout customer service. When cash flow becomes erratic, businesses can negotiate better terms with suppliers and seek outside financing. However, it is better to avoid problems with cash flow altogether by efficiently managing accounts receivable. Here are some tips to help you accomplish this.
Automate Your Financial System
Tracking the payments of your customers on paper can be an arduous process. To save time and increase accuracy, automate your financial system, including your handling of accounts receivable. For instance, templates will enable you to quickly send out invoices, and alerts can be scheduled to let you know when customers are overdue on their payments.
Revise Terms of Payment
Businesses often offer generous terms of credit to lure customers. However, if you are being overly generous, you may negatively impact your cash flow. Try to find a balance between keeping clients satisfied and your business’s need for strong cash flow.
Submit Invoices Expediently
As soon as you deliver products or complete services, you should immediately send out invoices. This demonstrates the professionalism of your company, and it also gets the invoices into the hands of your customers’ accountants so that they can initiate their cycles of approval and payment.
Actively Monitor Accounts Receivable
Whether you do it on paper or you have the technology to assist you, you must monitor the payment process of your accounts receivable. This will enable you to follow up right away if payments are late.
Have a Follow-Up Plan
When customers are late paying their bills, you need to react properly. If you want to maintain professional relationships with delinquent customers, lawyers and collection agencies should be a last resort. Instead, you could first offer a payment plan or allow a limited extension if the customer pays a convenience fee or interest. Having a plan in place on how to deal with late payments will help you resolve these issues as effectively as possible.
For more advice on managing accounts receivables, contact Porter Capital Group.