Finance & Accounting

Top AR Tips for Small Business Owners

accounts receivable

One of the key steps for a company to achieve success is good cash flow management. If your company has a smooth and continuous cash flow this helps to make sure employees, owners, suppliers, vendors, etc. have on-time payments. This, in turn, helps to improve your company’s viability. So, a quality system is required to make sure there’s a constant supply of cash into a company.

However, the process can be quite tough. Not all companies achieve success in collecting their payments for products/services. These results in cash flow slow down. That in turn in a low increase in the company’s accounts receivable.

In the majority of companies, the creation of accounts receivable is going to happen and there’s only way to manage it’s minimized by ensuring payments that are due are made as quickly as possible. A company’s profits can be checked quickly by reviewing the accounts receivable. This provides a clear snapshot of the company’s income. It’s important to get expert financial/accounting services that you need for AR management.

Another issue is since they’re a symbol of money that the company earns they could be included as an asset. Today many small businesses are dealing with a cash flow shortage, which makes it tough for them to pay their bills. So, it becomes very critical for them to manage accounts receivables better.

AR Tips for Small Businesses                         

Here are some ways to manage accounts receivable better.

  • Use credit limit effectively

Companies control the credit limit and thus must take full advantage of it. A 2014 study discovered that about half of companies check their customers’ credit-worthiness. It’s important to offer a moderate number of terms to your customers at first. After you’ve checked the clients’ payment habits over time you can then offer flexible terms.

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This provides both parties a chance to make sure the terms of payment are clear. This is one of the best methods to guarantee proper payment behavior of customers.

  • More payment options

when customers have only 1-2 payment options the ability to clear accounts, receivable is greatly based on the customer’s budget. In addition, a chance to serve to pay customers is then lost. A study found that about 70% of people aged 18-34 preferred buying companies that took credit cards.

It’s important to offer customers the option to make various types of payment options including credit card, electronic money transfer, or PayPal to make a safe/instant transfer of funds. There’s no need to wait for collecting account receivables.

  • Be better organized

Any company that wants to manage accounts receivables should get it right from the start. It’s important for the process to be dealt with carefully. The eligibility requirement for credit is important. It’s important not to make everyone eligible. Use a professional credit application company in order to collect customer data.

After your company makes the decision to give credit to a company they must sign a contract that states clearly the various operating terms. Quality invoicing software can be helpful in helping your business watch accounts receivables and also deliver detailed invoices quickly to customers.

  • Collection agencies

It’s important to only use them as a last option. That’s because a company can only be built when it works with people personally instead of getting a third party involved. You should only involve collection agencies when it’s clear the client definitely won’t make any payments. If that’s the case then it’s very practical to contact a collection agency because you have the right to be paid by the client who owes you money.

  • Use professional invoices

It’s important for the invoice given for products/services sold should be very specific. That includes info like date/time/tax/details of the various services offered. The invoice must include the amount due if the total is paid on or before the due date.

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The presentation of the invoice has a big effect on how much attention it gets. The invoice template should be made in a way that allows customers to see all the details and not miss any. It’s also important to include a message that thanks to the customers for doing business with your company. This helps to give a friendly touch to invoices.

  • Document everything

It’s important to document all account receivables. This is important since it helps the company’s bookkeeper prepare weekly/monthly financial statements. TI allows the accountant to handle tax payments. It’s important to document everything even the first contact, shipments, order tails, etc. If there are any conversations it’s important to keep a record in case there are any questions in the future.

  • Communicate

If you want to achieve effective accounts receivable management is to communicate with customers effectively. Doing regular communication with your clients can be helpful in making sure they make payments in a timely manner. A 2014 study discovered that one-third of companies discovered it’s difficult to maintain a high enough cash flow. This has a negative effect on profit margins.

Companies must use creative methods in order to connect with customers. It’s a good idea to offer various ways the customers can communicate with customers. This will help to make sure the companies can interact with their customers and have a personal relationship with them instead of just a business relationship. It’s also important to remember the special days of customers including birthdays and anniversaries. This helps to build trust with customers and helps to make sure payments are made on time.

  • Send reminders

Sometimes customers might forget to make a payment. In that case, your company should send out a reminder. The call/letter should use professional language that applies to the particular situation. The letter/call should only be done only after the due date has passed.

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When a customer keeps defaulting on payments the serious tone of the letter can be friendly/gentle. One study found that about one-quarter of invoices 3 months old can’t be collected. When invoices are one year the figure sky-rockets to 90%. After the letter is sent out the response can be used for later reference. This can be taken from a client about the particular payment date.

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