Proactive A/R Management
Maintaining low accounts receivable is a difficult task, yet it plays such a vital role in the overall success of any company. And successfully managing your accounts receivable—particularly the pivotal aspect of collections—can be a great boon to your company, while the reverse will probably be true if you neglect them. While there are no specific right or wrong rules regarding accounts receivable and collections, consistency is critical, regardless of your size. Consistent monitoring translates into more consistent cash flow. Several factors go into customers paying their bills late. They might not have the money at the moment; the department for which you do your work for doesn’t turn your invoice into their accounting department; an invoice simply gets misplaced … it’s all valid. Often, accounting departments have systems that prioritize who gets paid first, and they may choose to pay “more important” bills—those that directly impact operations—first. Excuses aside, late payment affects your business, and the act of asking someone to pay doesn’t mean you’ll get your funds. But there are internal tactics you can use to make A/R management, especially collections, more effective:
- Stay on top of account aging—Even if you have someone else in your organization responsible for collections, it makes sense to be aware of collections progress—or lack thereof—on a daily basis or at least as often as possible. Your A/R represent a “use it or lose it asset” and they don’t improve with age (the likelihood of collecting receivables decreases the older they get). Once any account exceeds agreed-upon terms, that account must be contacted. Once contacted, the client often needs a clear explanation as they may not know the background of the late payment (e.g., a lost invoice or bill). Be prepared to listen to an answer and not to get upset. This is an opportunity to create an ally in getting paid, not make an enemy who won’t want to deal with you or your people going forward.
- Document everything—No matter what, you need a record of any collections conversation, especially if multiple people handle collections, or if you consider using an external collections agency or even factoring. From contact names, phone numbers, contact dates and times, to whom the bill was originally issued to and any promises made, every detail matters. It also helps to create a mini-profile of the accounting practices of any company with which you do business, which can help cut down on duplication of work in a similar future situation.
- Make it part of your culture—Everyone in the organization should be made aware of the importance of A/R management and the ways in which cash flow affects their own bottom lines (e.g., regarding merit increases, promotions and bonuses). Salespeople, in particular, need to know about any overdue status issues with an account. Collecting accounts receivable is typically among the largest single headaches for almost every company. Although collections may be difficult and unpleasant, past due accounts receivable can be one of the most damaging drains on your cash flow. And the further you get behind the more you compound the problem. Staying on top of A/R may the best way to manage, and even stay ahead of, cash flow issues.
Sources: “Be Active in Managing Your Accounts Receivable,” BestManagement.com