The best way of running your business is by having all clients pay for the services/ goods. There shouldn’t be an excuse for paying later. However, in the real world, this is almost impossible. You have to give products or services on credit for continued business.
However, you must ensure that there are payments made. Your business cannot run without any income. The following rules will help in reducing the expected money in your accounts receivable:
- Have an automated credit policy
Technology has made a lot possible. Accounting software applications will give you the chance to set policies on your debtors and all customers in general. With your accounts receivable clerk, clarify the people or businesses allowed to get credit. You can do this by having a countercheck of the customers’ payables. Only worthy customers will receive credit. The amount of credit should be automated and fixed.
- Standardize terms
This is an important credit management rule. Setting up 15 days as the minimum days for repayment will help in being repaid in time. Notifications should be sent on the tenth day or so. Include all these in your service agreements.
Without the standardized days sales outstanding strategy, your business’s cashflows will be severely crippled. This rule will ensure that business is run effectively at all times.
- Be professional
This is a simple rule. Do not lend business funds to family or friends because their chances of defaulting are high. You may have to involve debt collectors and ARM managers at GGR Inc. but this may affect your relationship.
If you have to give out services or products to your kin, ensure that both parties can act professionally.
- Track payments
Careful tracking of clients should be done soon after sending invoices. You can start by calling your clients and asking for confirmation of receipt of the invoice. You may even remind them of the due date for payments. This is a better way of ensuring you are paid. You should also call if the payment is overdue.
- No credit to overdue accounts
Any client whose account is overdue should be signed off the credit list. This can be generated automatically using accounting applications. If this isn’t done, you will only be harboring more delinquents, increasing the risks to your financial position. Basically, you should cut off all credits to overdue accounts.
- Charge interest on overdue accounts
Just like banks do, you should charge interest to any of your overdue client accounts. This will put weight to your seriousness in running your business.
- Do not take unnecessary loans
Loans have indirect effects on your accounts receivables. By having high interest rate loans, your accounts receivables will be drained, affecting your liquidity and cashflows. Avoid high interest loans and work on collecting all money owed to you before deciding on taking up loans.
In conclusion, these accounts receivable rules are important for all businesses and if followed, your business will be at a low financial crippled risk. You can involve professional debt collectors whenever necessary because they are more experienced and your chances of getting your money back are high.
Jeremy Strauss is a financial manager and the founder of GGR Inc. His business success is as a result of hiring the right people and using the right debt collection tools. Read his blog to learn more about debt management and policies for debt collection. You can also check his LinkedIn profile.