Managing accounts receivable can seem like a rather scattered process, if a business “plays it by ear,” rather than implementing the tools necessary to keep things under control. Tracking aging windows, sending out “friendly reminders” to customers who are late on paying their invoices, juggling multiple accounts – it can become too much to handle very quickly, as a business grows. In order to rein in accounts receivable, and make it more efficient, we have compiled a short list of ideas that work for businesses of all sizes.
Offer Consumer Financing
It may sound like something only reserved for big chain stores or car dealerships, but consumer financing exists in almost every industry, these days. Instead of placing a strain on cash flow while waiting for customers to pay the full cost on their invoices, consumer financing spreads out the total cost into monthly installments. This can be set up quickly and easily through a commercial finance company, and ensures a steady cash flow, while also removing the burden of chasing after multiple accounts for large payments.
Get a Down Payment
Getting a down payment on customer orders is a good way to offset the hassle of accounts receivable. Rather than juggling company finances to cover the cost of orders while preventing a strain on cash flow, a down payment acts as revenue to cover those expenses. Some businesses will even require a second payment halfway through the process. Additionally, most customers who have money down on an order are more likely to pay the balance on time, once it is delivered in full.
Get a Cash Advance on Your Accounts Receivables
Businesses sometimes use the services known as AR (accounts receivable) financing in order to get instant cash on unpaid customer invoices. With this model, the unpaid invoices are sold to a third party in exchange for money (minus a small processing fee). The turnaround time is usually 24 hours form the time an invoice is submitted, and alleviates the waiting time for customer payments. What’s more, the responsibility of getting payment from the customer falls to the third party financing company, thus eliminating yet another accounting headache. Accounts receivable financing streamlines accounting because all revenue generated from customer invoices comes from one source (the company offering AR financing) rather than keeping track of multiple customer accounts, their respective aging windows, and having to send out reminders for payments due.
By following this guide, and implementing any or all of the above strategies, accounts receivable will become much more manageable now, and as your business grows.