Tips to Improve Cash Flow from Accounts Receivable Policies

Improving Cash Flow from AR PoliciesLet’s face it; we all like cash.  It makes our companies more attractive to vendors and prospective employees.  Improving cash flow from your accounts receivable is a worthwhile goal.  It allows your company to look better on financial statements, and banks seem to like it when your company looks good on paper.  An increased cash balance allows you to invest in new products, expand into new markets, or take that dream vacation you have been putting off for years.  Below you’ll find some tips to improve your cash flow from accounts receivable policies:

Tracking Accounts Receivable – You need to know the value and invoices in your accounts receivable.  It is important to know who owes you and when the money is due. There are accounting systems that make this easier by tracking up-to-date receivables and reminding you of past-due payments. An aging will let you know to what extent an account is outstanding.  The more days outstanding, the less likely the company will receive payment. Think of the effect on income for all your hard work.

Clear and Concise Invoices – An accounting system assists with formatting and sending prompt invoices. Setting up a proper invoice is important; without all of the information, it is difficult for some customers to pay on time. Invoices should include: address to pay, invoice number, invoice address, invoice date, due date, terms, amount due, and billed products. In addition to sending out invoices, an accounting system tracks the payment status of invoices already sent out by company account and invoice number. This shows which customer has paid which invoice.

Secure Payment Option - A secure pay system option helps the customers pay their invoices promptly. If the company allows for customers to pay with a PayPal, Authorized.net or credit card, the customer can easily enter their information and pay for the bill in a matter of minutes. Less hassle for the customer increases probability that the company will be paid on time.

Small Enticements for Continuous On-time Payments – Some companies offer incentives to customers that pay on time or early for consecutive months. For an example if a customer were to pay on time, a company could offer the customer a small discount on their next payment or a special gift. A special discount or small gift gives the customer an initiative to stay on top of their payments while the company is ensured to receive its money.

Reminding the Customer – Many companies, such as American Express, send an email to remind customers of their payment due a few days before the due date. These reminder emails are important to send because customers often get caught up running their business and forget about an upcoming due date. Some customers will pay the balance due immediately after receiving a reminder email. An accounting system will automate this customer service feature.

Plans for Past-Due Customers – Installment plans, promise to pay, or even setting up a new contract are all options to offer customers with overdue invoices. First, installment plans are popular because they allow the customer to place a deposit on the amount outstanding and then set up a rate for monthly payments for the remaining balance. Installment plans can be set up on a customer-by-customer basis.  The second option is setting up a promise to pay for the customer. A promise to pay is when the customer agrees to pay the amount due by a specific date and time. It is import to have both the address of both the Promisor and Promisee, the amount due, due date, and understand the conditions so there is no confusion.  Finally, there is the option of setting up a new contract. Setting up a contract is as it sounds, it is replacing the current contract with to a new one that fits the customer’s current financial needs. All of these plans allow the company to collect its accounts receivable.  Even though it is in smaller increments or at a later date, it is better than not receiving the money at all.

A Variety of Payment Options – Want to get money into the bank account quickly?  There is a variety of payment options that reduce time, labor, and float.

You can have the bank do your work for you via a Lock-box. A lock-box lets the post office delivery your accounts receivable checks to the bank and the bank deposits the checks for you.  All for a small fee, of course.  Lock-boxes eliminates the check receipt and check delivery to bank time.

If a lock-box is not in the company’s interest or budget, then there is another quick option. Banks offer portable check scanners that can be kept in the office to deposit checks. The bank can send the company a device that scans and deposits checks into the requested account. This is essentially bringing the bank to your office.  You guessed it; there is a small fee for this option.  However, it does cut out the time it takes to go to the bank and wait in line. It also allows for the company to scan the checks immediately and document for any future reference.

Want to cut out the time it takes to process paper checks altogether?  Then, consider wiring/ACH transfers to the account. This allows the customer to wire money directly to the company. Generally speaking, it takes from one to a couple days for the money to be available in the company’s account.  It avoids the process time of mailing, receiving, and depositing checks.

Did we mention credit cards yet?  Well, we need to mention them again. You guessed it, for a small processing fee you can accept credit cards. Accepting credit cards allows for the company to ensure they have been paid and is an easier, quicker way for customers to pay.  The customer enters the credit card information and the money is in your account 24-72 hours later, generally.  There is one downside, credit card processing fees can eat into your profit.  Recently, Costco has decided to stop taking American Express because the processing fee was too high.  Luckily, business owners have a choice of payment options offered.

Sell Your Bad Debt and Accounts Receivable – Selling your bad debt is a last option to capture cash from aged accounts receivable. A collection agency will value the bad debts and then give you an offering amount. When selling the bad debt, a company is likely to not get a large portion of the turnover amount, often pennies on the dollar.

Factoring, AKA selling your receivables, is close to the same process of selling bad debt. However, since these accounts are a little more reliable and less risky, you will receive a larger percentage of the account. The factoring company will look at the accounts aging, as well as customers’ credit history and payment records.  The factoring firm will offer you a rate to purchase the accounts chosen.  The factoring firm is likely to choose your better accounts, current from good paying customers.

All of these tips are easy to implement. If a company were to follow some of these tips, it should recognize a slow but still positive increase in its cash flow from accounts receivable. If a company were to implement all of these tips, the company could immediately see an increase in its cash flow. It just depends on how strongly a company wants to receive its cash from customers that have already received their goods or services.   Now, go take that dream vacation with all your new-found cash.

 

You may also like

Trinity Purchasing Suite FAQs
on August 7, 2019
business software

Hundreds of Microsoft Dynamics GP customers have enhanced their ERP system with the advanced ...

commentIcon 0 Comments
Staff Author
How Late Payments Impact Smaller ...
on August 7, 2019
business software

Imagine if you were shopping and instead of paying for your items, you announced to the store clerk ...

commentIcon 0 Comments
Staff Author
6 Remarkable Benefits of Accounts ...
on August 7, 2019
business software

Business is great, product is moving out the door, and accounts receivable is way up. However, ...

commentIcon 0 Comments
Staff Author
Join Dynavistics in Helping a ...
on July 23, 2019
business software

On July 4th 0f 2018, fellow Microsoft MVP, GPUG All-Star, Dynamics GP blogger, and past ...

commentIcon 0 Comments
Staff Author
How Business Seasonality Impacts ...
on August 7, 2019
business software

We all know that leaves turn, snow falls, and seasons change. But did you know that your customer ...

commentIcon 0 Comments
Staff Author
Tackling Food Distribution ...
on August 7, 2019
business software

Demands placed on food distribution companies can be intense. Whether you’re in the general ...

commentIcon 0 Comments
Staff Author