Collecting on accounts receivable can be an unsettling process. It is often difficult to continue chasing invoices and nurture your business while still maintaining a good relationship with your clients. The business relationship goes both ways, right? Wrong. Meanwhile, your cash flow management is giving you an accounting-induced heart attack. Chasing checks and having to send constant reminders to clients is taking your focus off other pressing business matters.
Here are some tips and tricks to help you collect your accounts receivables:
- When establishing your business relationship with a new customer be sure to send a copy of your terms and conditions stating when payments are due once services/products are received. Clearly stating your policy for any penalties and interest that can incur if payment is not received promptly lets everyone know up front what is expected.
- If payment on an invoice is late, follow through on your terms and conditions, sending another invoice with the agreed upon penalties and interest clearly shown on the invoice.
- If late payments become chronic, you may want to revise your terms and conditions to set stricter policies or shorter terms.
- Continue to remind, (and remind again), delinquent customers, sending a new invoice each time with a new total reflecting the additional charges.
- Use other accounts receivable management techniques such as hiring a debt collection lawyer or credit bureau service.
Time is money
Unfortunately, even these tips and tricks can fail you, leaving you at a dead end. If you are wasting time trying to collect your receivables, you could be missing other profitable opportunities. Sometimes, the best option is to turn to outside resources and start asking the experts. When your assets are tied up in receivables, many solutions such as using loans and lines of credit work well, but the lending institution will want to look at your accounting records and any previous debt. Loans and lines of credit will also appear as more debt and additional liabilities on your books. While this is a traditional and commonly accepted approach, it can spiral out of control and still continues to leave the original problem unaddressed: When and how do you collect on your receivables?
Accounts receivable factoring is a creative and hassle-free way to manage your accounts receivable nightmares. It allows you to focus on current business activities, instead of continuing to chase invoices for the money you have already billed but remains uncollected. Your business receives less than the original invoice in an amount that is dependent upon the default risk. In general, the older the invoice, the higher the default risk and the more it will cost. The major advantage to using accounts receivable factoring is that it helps free up capital and increase cash flow quickly.