Top 3 Tips to Help You in Accounts Receivable Management
It’s very important to manage account receivables for small to mid-size enterprises for correct accounting. However, this very thing can be difficult to manage for them, particularly while dealing with larger enterprises. Sometimes these SMEs have to wait as long as 90 or even 120 days to get paid from bigger companies. Naturally, this can put small businesses in a precarious cash flow situation.
What is Accounts Receivable?
Accounts receivable arises when a client makes a purchase but doesn’t make payment immediately for it. Unfortunately for emergent businesses, accounts receivable normally goes on increasing, usually resulting in even higher cash flow pressures.
It’s essential to set up a process to monitor and collect your receivables as early as possible. Management of accounts receivable is critical for running a business and will ensure your long-term success. You can take help of the Singapore SME accounting services for this.
Here are a few tips to help you in accounts receivable management and get your company a continuous cash flow.
1. Set a Goal of Days Sales Outstanding
DSO or Days Sales Outstanding is a common metric used to gauge how effective a business is at collecting receivables. Although each business has different terms and requirements for payments, you must set certain duration of collection that will fit in with your particular needs. This duration should be as short as possible, normally between 15 and 45 days, and must be set thoughtfully since it will impact your cash flow significantly.
2. Track Payments Keenly
Your company should create an A/R aging report. It categorizes accounts receivable based on the length of time an invoice has been outstanding. Having this handy, you can review and soon recognize accounts that are current, before 15, 30, 60 or 90 days and even older. Contact clients through phone or email to let them know that payment is late.
3. Consider Giving an Early Payment Reward
It’s a good idea to offer your clients a reward in the form of a discount, for example, to pay their bills early. While such a discount for early payment will make your business shell out money, the stability of cash flow it brings can be well worth the amount. Remember to offer only what you can afford while setting the discount. Keep the discount to a minimal but enough to impress your client and make them feel rewarded.
Lighten your cash flow burden with a correct accounts receivable policy with the above tips and improve your revenue profile.