EA - Accounts Receivable Tips for Business Owners

Accounts Receivable Tips for Business Owners

As a small business owner, how many responsibilities are you juggling throughout the day? Some people find it hard to stay current with accounts receivable invoices when they are busy working on product development, marketing, employee management, and more. Even though you are working on many important details in your business, it is important that you are proactive with your AR strategy.

Why Your Accounts Receivable Strategy is Important

Do you find that your sales are strong, and yet you are always facing a difficult cash crunch? It can be a challenge to keep the money flowing if you don’t have a good AR system in place. Even if the numbers show that your business is prospering, you could be facing serious cash flow issues if you aren’t diligent with collecting payments from your customers.

It’s often easy to stay current with your account payable invoices, because the vendors expect payment by a certain date to avoid fees and interest costs. Do you maintain these same standards with accounts receivable? You need to be sure that money is in the bank so you can pay your bills, which means that you must be diligent about collecting the cash that is owed.

In fact, it’s easy to see that establishing an effective AR strategy should be a foundational practice for every small business. Unfortunately, too many small business owners neglect AR and face avoidable problems as a result. When you optimize your Accounts Receivable systems, you can reduce your stress and optimize the financial success of your company. As a result, healthy cash flow will have a positive impact on your sales, marketing, and all other business operations.

As you can see, it is essential to create a good AR system and also stay consistent with maintaining the system in the future. It’s worth the time to structure these processes within your company. Always look for opportunities to improve these systems if needed. Even if you don’t see the immediate benefits of optimizing your Accounts Receivable processes, these efforts will undoubtedly have a powerful effect on your future business efforts. You can reduce the possibilities of wasting existing capital, giving you the cash flow to pay down debt, fund growth, and reduce costs.

Common AR Problems Faced By Small Business Owners

There is no reason to “reinvent the wheel” when other business owners have already forged the pathway forward with good AR systems. Here are some of the common pitfalls encountered when business owners don’t have a good Accounts Receivable system:

  • Time: You might feel you don’t have time to work on AR right now. But, procrastinating this process can result in a huge time requirement in the future when you are trying to clean up the mess. It is best to be consistent and diligent with your billing in real-time. This process minimizes the work that you need to put in later on when the information is no longer fresh on your mind.
  • Cashflow: A lack of money in the bank will have a ripple effect to impact all aspects of your business. For example, if you aren’t collecting on the invoices that are due, then it means you won’t have the cash needed to invest in your marketing strategy. As a result, your business growth will slow.
  • Cash Allocation: Another issue with poor AR systems is that you will find it difficult to stay consistent with the allocation of your cash resources. When cash is tight, it means that you will always be putting out the fires instead of building your business proactively.

Tips for Improve AR Systems

Now that you can see the importance of a good AR system, it’s time to commit to the changes that will improve your business practices. What are the best tips that need to be implemented? Here are a few proven strategies that can help your business thrive:

  1. Invoice Timing: Don’t fall into the trap of procrastinating the timing of when the invoices are sent out. If your customers aren’t invoiced, then you can expect payments will not come through. Invoicing consistently means that you can receive the payments as soon as possible, helping to keep the cash coming into your bank account. The best practice is to send the invoice at the time of delivery, giving the customers an immediate reminder that the payment needs to be sent.
  2. Invoice Follow Up: Just because you send the initial invoice, doesn’t mean that the payment will be remitted automatically from your customers. Build in a follow-up system for invoices that are due. The process can be built into your accounting software with reminders that you need to reach out to customers who are past-due with their payments.
  3. Ask for Payment: You should never feel bad about following up on an overdue invoice. If you don’t ask for the payment, then it will result in invoices that are months old. The longer the invoice sits unpaid, the more likely you will never receive payment on the invoice. If your digital reminders aren’t enough to encourage the customer to send payment, then you shouldn’t hesitate to have a conversation with the person. This discussion can help you understand more about the payment delay, giving you the opportunity to find a solution that meets the needs of all parties. For example, if the payment is late because of the customer’s cash flow concerns, then you might be able to set up a payment schedule with smaller milestones.
  4. Clear Payment Terms: Make sure you are clear about payment expectations from the beginning. These terms will give your customers information about the expected timeline for the payments, helping you avoid confusion when it is time for the payment to be collected. Communicating this information gives you the structure so that you can build in late fees or interest costs as needed.
  5. Milestone Invoicing: If you are working on a big project with a client, it isn’t necessary to wait until the completion of the project to be paid. When larger projects cover a long period of time, it is best to bill based on milestones instead of completion. This milestone billing strategy ensures you have money for supplies and payroll as the project progresses, helping you avoid cash flow issues. Plus, you reduce the risk of missing out on the full amount if the customer doesn’t pay for some reason in the future.
  6. Itemizing Invoices: Don’t send a generic invoice with an unexplained amount due. Each invoice should show the breakdown of the products and services that were provided. If customers have questions or disagree with the amount, then it means that they will likely delay payment on the invoice. You can reduce the risk of this delay by showing the full amount due as well as the breakdown, helping to avoid questions about the money that is due.
  7. Provide Various Payment Options: While it’s true that “cash is king,” you will lose out on business if you don’t accept credit card payments. It is smart to accept a variety of payment options, including cash, direct deposit, credit cards, Paypal, and even checks. Giving customers several payment options increases the likelihood that they will be able to come up with a payment solution that fits their cash flow needs.

Start This Process Early

Regardless of the stage of business development you are experiencing, it is essential you are proactive with implementing a good AR system as soon as possible. Even if your business is in the start-up mode and you aren’t collecting money for products and services yet, you need to be sure that the system is in place when you are ready to move forward.

Too often, business owners are so focused on product development and marketing strategies that the important financial details get overlooked. Make the smart decision by starting this process early, so you have a good system in place when the time comes. Your AR system should include details such as the accepted forms of payment, establishing payment terms, and follow-up communication for unpaid invoices. When you are proactive with these details, it makes your business launch smooth and seamless.

Tapping into Industry Expert Knowledge

Are you running into challenges with your accounts receivable system? It can be hard to create a new system if you don’t have experience with financial tracking or accounting. Luckily, you can hire industry experts who will help you structure the right financial software to systematize your invoicing and payments. This process is invaluable to create the structure that is needed, so you don’t have to stress over your small business accounting.

You’ll find it is worth the investment to tap into the services offered by an experienced team. If you are interested in more information about how you can improve your accounts receivable and accounts payable systems, then our team is here to assist. Call Easier Accounting for information about the services that are available for your small business: (888) 620-0770.

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