How to Manage Accounts Receivables

bookkeeping brisbane

This is a follow-up to last week’s article on cash flow. Any bookkeeper in Brisbane would recommend focusing management on accounts receivables as they are controllable and easily convertible to cash. A burgeoning AR is a sign that your business is selling and you are accumulating customers. If your accounts receivable are all current and moving, then all is well. Your business is growing, and you are also able to manage accounts.

But a growing AR could also be a bad sign. It means more and more of your working capital are trapped, and your business strapped of needed cash to meet obligations. If the trend continues, you will either be forced to inject new capital to sustain operation or to close up.

Six Steps to Keep AR Current

The smaller the enterprise and the less its resources are, the more it needs to maintain current accounts. Bigger entities might be able to sustain operations, but not for long. Thus, keeping your cash flow liquid and your AR current should be a priority. Here are some easy steps Brisbane bookkeepers recommend to keep your business liquid and running.

1.       Offer Early Payment Incentives – Giving positive reinforcements works all the time. If you can provide 10% discount to cash payments, you can afford a 5% off for payments within 10 days, 3% with 15 days, and 2% off when the account is paid before its due date. The discounts you will be giving will create positive customer relations, encourage repeat business, and will save you from dealing with delinquent accounts.

 

2.       Demand a Deposit – Make it a policy to demand cash deposit on every transaction. People who are already invested on something are more inclined to pay it off. Demanding for a deposit will automatically cut down your losses. Make it a company policy of asking for a deposit and apply it to all of your customers. This will work better if you hold off the release of the product.

 

3.       Make Payments Easy and Convenient – Provide easy payment methods for your customers. If you have an online business, provide easy links for them to pay. Aside from credit cards, accept other popular payment methods like money transfers, PayPal, or cash drafts. You can setup bank accounts where they can transfer money to. For brick and mortar businesses, accept various payment schemes. Aside from cash, make sure that you have the means to process credit card payments, accept check payments, and other collection modes.

 

4.       Provide Trickle Payment Schemes – Not everyone can afford to payoff a purchase all at once. If you are carrying expensive products, this scheme will not only help manage your AR, it can also encourage sales. The scheme will let the customer pay for the item in fractions, with each payment having different due dates and terms. Dividing and settling smaller bills is a lot easier for most.

 

5.       Set Credit Limits – Setting credit limitations will also limit the amount of company assets stuck in the AR. With the limits in place, customers will be forced to settle their accounts before they are able to get more merchandise. Credit limits can be uniform to all clients, or set according to their credit standing, client reputation, and relationship with your company.

 

6.       Keep a Close Eye on Your AR – Make sure that you are updating, recording, and evaluating your accounts receivables. An established Brisbane bookkeeping practice of managing AR is by setting up an aging system for the accounts. Aging calls for classification of accounts according to its age. Overdue accounts should be kept in a file and immediately subjected to aggressive collection process. Through aging, you will be able to determine clients who are delinquent in payments. Aside from actively colleting, you can also lower or totally withdraw credit limit you are giving to hard-to-collect customers.

 

7.       Enforce Aggressive Collection Procedures – Design a step-by-step collection procedure. As soon as an account becomes due, Brisbane bookkeepers would recommend that you call the client to kindly remind him or her of the account. The courtesy call will let the client know that you are aware of the infraction and that you are tracking your accounts. This will encourage them to settle future accounts on time.

 

If the first call did not result to a payment, two more reminders, first another call, the second in the form of a formal letter of demand, are in order. Set clear payment deadlines in every reminder. If you still fail to collect the account, refer it to a legal collection team, and do not let it sit in your files.

Businesses are not created the same. Every enterprise has unique clients, market, demands, and operation environment, thus needing unique solutions.  A licensed bookkeeper in Brisbane can better design an AR management and collection system that will fit your business.