Accounts Receivable Cash Flow, Your Lifeline To Survival
- Rescue your cash flow by keeping on top of your debtor payments
Accounts receivable is a vital cash driver because at the end of the day, your business day’s receivable could be the defining factor in terms of the financial viability of your business.
Cash is practically the lifeblood of your business and it drives each and every operation for all associated with it. For a business, its sales transaction is incomplete until it receives payments for goods sold. In many organizations, the responsibilities of sales people includes collections in addition to sales. These days many companies insist on advance payment in full from their customers, which gives them the cash to invest right from the raw material stage. Where this is not feasible, the goal is usually to collect cash receivables as soon as possible once the sale is made.
One prerequisite for this is to make sure that the customer gets the right product at the right location, at the right time, in the right specifications, so that they do not hesitate to pay promptly. This also includes shorter order-to-delivery lead times.
You must ensure also, that when you offer your customer better payment terms, they have the ability and willingness to pay you and this must not change between the time the order is shipped to them and the payment due date. Managing receivables is a challenge for any company. However it is mandatory to make sure that payment owed to you for services rendered is collected to enable you keep up with your essential financial commitments.
Of course, there will always be situations where things do not work out as they should. In such cases, it is important to have strong policies in place which clearly state how much credit you can allow a particular customer and what action is to be taken when that limit is reached.
Letting Your Customers Know
Generally, Accounts receivable is reported in terms of due dates. So you might see invoices categorized into 30, 60 or 90 days. Often only customers who defaulted on their payments for over a month were contacted. Obviously this is not efficient.
The current procedure with most companies is that they follow up right from the first due date regardless of whether the payment has been received. Where payment is received, the customers are thanked. Where the amounts are still due, the call is a reminder to let the customer know that the payment is due, giving them the chance to confirm that order delivery was done as per the order. This phone call also helps to find out whether the invoice went to the right person/address.
Sometimes the invoice can be sent to the wrong person, because of which it would be quite some time before the right person received it, if ever. Another very important aim of the call is to let the customers see that the company is serious about collecting its dues on time right at the start of the customer-supplier relationship.
These days, follow up is easy thanks to computers and the internet. Receivables aging reports can be easily generated and follow ups pre-set to go off at the appropriate time. Payments are often delayed because of incorrect/inadequate/inaccurate invoices. By designing a well planned invoice, this error can be minimized. Payment terms must be clearly stated along with late-charge policies and dispute resolving procedures.
