Once your business issues an invoice to a customer and until a payment is received, the amount sits in the accounts receivable 'bucket' (AR).
The AR usually comes in a report form which you can run on any accounting system. It will usually show a list of all these outstanding unpaid balances sorted out by the time that has passed since they've been issued till today, i.e.: 0-30 days, 30-60 days, 60-90 days, 90-120 days and over 120.
How do you take control of this?
1) Run this report once a week or at least bi-weekly
2) Start by reviewing the accounts that are over 60 days (usually the last three columns). Some industries are notoriously known as late payers while others pay faster. You might want to start your review from the 30-60 days. This is a business decision which also depends on how well you know your customers and their payments' pattern
3) Reach out the customers that came up in your review (phone, email, text) to ask about an update. When do they intend on paying? Why has there been a delay? Maybe there's a problem with your invoice (price, quantity, product defect or another issue). Get as much information as possible
4) For older outstanding balances you have not been successful in collecting yet, try to give the customers an incentive to encourage payment, for example a discount.
5) Document the conversation in a separate file. This should include date the conversation took place on, who you spoke with and what was the outcome of the conversation including follow-up date
Why is this so important?
The more often you review the AR list, the higher are your chances of collecting the funds and improving your cash-flow without risking bad debt. In addition, most of the lenders would want to obtain a list of your AR to understand who your customers are and how quick they pay. The more customers you have on the over 60/90 days column, the less the chances are they will want to lend you money. Why? because your business needs the cash flow to pay back loans and if you can't control your AR, how will you be able to pay back your lender?
To learn more about this, contact us today.