It is a primary concern of business organizations to focus on net income because it is a logical solution to determine the financial health of a company’s operations. But an income statement merely states a relationship between revenue and expense. By no means, it shows how much cash a business has in hand to meet the day to day working costs. So, what’s the solution?
Account receivable management is one of the keys to ensuring that your business’s financial health is sufficient to handle daily expenses. Unfortunately, not many business organizations know how to effectively manage accounts receivable and when they need to improve it. Mostly, people don’t know that they can outsource accounts receivable services to maintain their business’ financial health.
Signs of Bad Accounts Receivable Management
CapActix is providing accounts receivable outsourcing services for many years now. In our experience, there are plenty of different bad A/R management signs that a company can identify to improve financial health. Some of the common bad signs of accounts receivable are –
Miles Long DSO
If you have miles extended days sales outstanding cycle, it means that you are selling a lot on credit. When you have a long list of unpaid bills, you will likely spend most of your time clearing the debts rather than improving your sales. You need to hire outsourcing accounts receivable services when your DSO tends to fluctuate a lot. It is a sheer indication that you aren’t planning ahead, and there might a situation arise when you won’t be able to pay your everyday bills.
Eliminating Credit Policy
When you don’t want to suffer from the fluctuating DSO, there’s no solution to eliminate your credit policy. Credit is one of the core functions of business practices, so you should not eliminate it overnight. However, giving credit to new clients without a background check would be financial suicide. Thus, always run a deep background check before giving credit to the new clients. If possible, only give credit to your existing and trustworthy clients to develop a better business relationship.
Not Having a Receivable Recovery System
There’s no harm in selling goods on credit, but when you don’t have an adequate accounts receivable management system to recover back your money, it is a problem. You need to set up a department or appoint a person to manage all the due payment who can send invoices on time. However, if you can’t afford to hire a dedicated A/R person, you can outsource accounts receivable services. With the dedicated A/R team, you can effortlessly maintain your credit rolling system.
Long Collection Period
You need to fix the short collection period as much as possible. It is a gigantic warning sign when you start to give a long period to collect the debts. The reminder call to clear due should be sent out within 30 days, even earlier, but not later than that. Once you send a reminder call, you can’t expect an immediate payment, and you might have to negotiate some time with your buyer. Thus, if you don’t want to jinx your financial health, give shorter collection periods.
Not Stepping Up with the Technology
One of the worst signs of bad accounts receivable management is when you aren’t using the latest technologies to manage it. Nowadays, a plethora of A/R software is available to smoothen up your cash flow system, so if you aren’t using them, you are set to doom. You are wasting so much time and effort in the absence of the automated accounts receivable system. For effective cash flow, automate things today.
Steps to Fix Account Receivable
Now, if you are experiencing any of the bad accounts receivable signs, you have to immediately call the reinforcement system and start fixing it. Immediate steps that you can take to improve your A/R system are –
Reshuffle your Payment Terms
If you are still following the old school payment policies where you send invoices via mail to your clients, simply change that. When you send invoices through regular mail, it takes too much time to reach your customer and even more time to take action. That’s why you should use the email system to send an invoice and add in your payment terms – clear payment within 24 hours of email. This way, you can instantly call for money when you need it. Revising payment terms can improve your payment cycle a lot.
Accounts Receivable Outsourcing
If you want to scale up your business operations, you have to appoint a team or person to handle your unpaid bills. You can’t run yourself behind the debtors and make new strategies to grow your business simultaneously. However, if you don’t have a sufficient budget to appoint A/R manager, you can hire outsourcing accounts receivable services to reduce your burden. The outsourcing service provider will only charge for the services rendered; thus, you can improve your accounts receivable without spending too much.
Improvise Payment Cycle
If you have been sending an invoice to your clients at the end of the month together, you need to change it. You should send an invoice to your clients immediately after the delivery of products or services. This way, you won’t have to wait until the end of the month to get your payment. Additionally, you will get paid throughout the month so you can easily run your daily operations.
Maintain a Good Relationship with Customers
Your satisfied customers are the most valuable assets of your company and strengthen the cash flow system. When you work on improving the customer satisfaction level, you will be able to improve the accounts receivable system. For instance, you should make a call to get feedback from your clients instead of demanding money. Furthermore, you should consider it’s your own responsibility to remind clients about the due payment. With a satisfied client, you can give energy booster to your business.
Platter of Payment Methods
Giving a customer several ways to pay his debt makes it more likely he will pay you promptly. For example, you should not restrict your clients to pay via check or cash only; you can give digital payment options to your clients also such as PayPal, ETF, and other e-wallets. With an easy payment system, you can indirectly encourage your clients to pay quickly.
Effective Accounts Receivable Flow
A steady cash flow system is the foundation of your growing business and its financial health. You can easily manage your long- and short-term goals with systematic accounts receivable flow. Thus, you have to recognize the warning bells of bad A/R management immediately and take swift actions to improve it.
If you are looking for a helping hand to improve your accounts receivable management, you can outsource services from CapActix, and our efficient team will instantly improve your financial health. For more details, contact on email – [email protected]. or can call on +201-778-0509.