money

How AR Your Receivables?

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When I ask business owners about their AR, they normally respond with either, “We invoice our customers.” or “We collect payments on a regular basis.”

I’m always glad to hear those responses. However, when I ask, “What is your accounts receivable turnover?” or “How many days does it take for you to collect?”, the business owner usually tells me it takes a month or two. Some may not know if it is within 30, 60 or 90 days. Once I begin reviewing their books and processes, I often find that their AR and cash management need a closer look.

Ever wonder how is it possible to be generating great sales per your income statement and have a monthly shortage at the same time? You may not be sure if your business is even achieving its break-even point (BEP). Are you meeting the minimum to cover overhead? What about sales expectancy? Are you generating a profit? One of the main reasons you have decided to be in business is to be successful in the service or products you provide. The goal should be to generate a profit so that your dreams and visions for your business come to fruition.

What if you were able to ascertain where you are currently and map out the steps you can take to improve in this area? What if you had a clear picture to help direct your business decisions? AR and cash management are areas that will need your focus and attention.  A lot of us start off and have current clients that meet our expected profit margin. Identifying your top customers, organizing invoices, and determining how to best collect on your sales will be essential to your growth.

With that in mind, here are 8 accounts receivable and cash management tips to help you get paid:

  1. Organization is Key.  Make sure that you have an invoicing system that is user-friendly to both you and the customer. It should be simple to access and issue payment upon receipt.
  2. Establish Great Communication with your Clients. During the initial meeting, share proposed contracts with details about the services being provided and your payment terms. Also, establish a business relationship with an open line of communication. Contact them on a monthly basis. Do recognize birthdays, anniversaries and add any personal touches you deem appropriate.
  3. Start Early. Establish a system that will generate reminders to your clients about upcoming payments. Having an invoicing system which will send out recurring monthly billing provides you with an organized way to record all sales and reminders to your clients.
  4. Remind, Don’t Wait. Once you find that a client is late with their payment, send out a reminder or give them a courtesy call. Make sure to be creative with your reminders and responses to nonpayment. Your client may have honestly forgotten. But, keep in mind: the longer you wait, the harder it will be to collect.
  5. Always Be Professional. As you are reviewing your bank account, sales, and expected close during the month, you may discover that some of your trusted clients haven’t yet issued payment.  This can, at times become personal and emotions may run high. Don’t allow this to drive your next step and decisions. Take a deep breath. These clients maybe be friends, network and business associates, or even members of your church. It’s important to keep it professional.
  6. Collections Call. Conversations concerning past due accounts can be tense. Establish protocol as to how the calls will handled and who will be responsible for making them. Be sure to review your “contract payment terms” beforehand and determine that you have exhausted all other efforts in collecting payment.
  7. Installment Plans.  Don’t underestimate the power of installment payments. Try offering them to your clients that may be facing financial hardship. If you would like to be of help and your goal is to make sure your accounts are paid in full, an option like this is better than a customer not paying you at all.
  8. Consider Outsourcing. Making a decision to outsource your accounts receivable and billing process might be helpful and allow you to focus more on managing your business.  Outsourcing helps to free up your time and resources. Taking a look at your weekly and monthly data will let you know immediately the state of your AR Sales and cash flow in a more timely manner. At Quality Financial Services, we offer this service to help small businesses operate more efficiently.

Keep in mind, generating sales and revenue is wonderful, but actually collecting is key to your company’s survival!  After all, “Your business is only as profitable as you are.”

 

 

 

 

 Nicole R. Cooper, MBA is the owner of Quality Financial Services, LLC, a company specializing in AR/cash management and collections. She is also an Invoice Sherpa Advisor.

 

Do You Truly Know Your Business Costs – You Better !

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Your company’s profitability depends not only on sales but also on effective cost management. Are you adequately addressing the cost side of the business equation?

Analyze Your Cost Structure

You probably can readily identify the products and/or services that are generating your greatest sales volume. But can you identify all the costs associated with providing each product or service? Only when you know your true costs can you effectively allocate resources to the work that is most profitable for your company.

Actively Monitor Operations

As the busy owner of a small business, you can’t be everywhere all the time. But you do need to stay in circulation, regularly observing the day-to-day operations of your business and talking to your managers and employees. By staying visible and encouraging an open dialogue, you’ll be in a better position to uncover costly problems before they seriously erode your company’s bottom line.

Solicit Bids

Even if you are satisfied with a current vendor, you may want to talk to the competition from time to time. You won’t necessarily want to switch vendors simply because you are quoted a better price. But you may be able to use that price in negotiating more favorable terms from your existing supplier.

Watch for Discounts

In the interests of cash flow, your company may routinely pay its bills only when they come due. While this generally is a sensible strategy, it may not be wise if you are passing up generous cash discounts for earlier payment. In the current low-interest rate environment, borrowing the funds you need to take advantage of discounts may be a better move. For example, suppose a vendor offers your company a 2% discount for paying a $10,000 invoice 20 days early. Passing up the discount will cost you $200. Instead, you might borrow $9,800 from your bank, pay the discounted invoice, and repay the loan in 20 days. If the rate on your bank line of credit is 8%, you’ll owe about $45 of interest — for a net savings of $155 on just one invoice.

Effective cost management requires good information and careful planning. For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.

The Pros and Cons of Charging Late Fees

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image via Stocksnap.io

Do you struggle with getting your customers to pay their bills on time? Charging late fees might be helpful, but there are pros and cons to this approach.

On the plus side, late fees:

> May serve as an incentive for customers to pay bills by their due dates

> Are a source of additional cash if and when you receive them

On the downside, late fees:

> May not achieve the desired result of on-time payment

> Could alienate customers who sometimes pay late but are otherwise good to do business with

If you decide you will impose late fees, make sure your customers know about your policy up front. You should include the policy in customer contracts and on the face of your invoices. And be sure the amount you charge complies with any restrictions your state may have.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track.