Ins and Outs of Accounts Receivable for Small Business

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Ins and Outs of Accounts Receivable for Small
Business
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• You may call it bills receivable, or simply
  invoicing. By any name, its crucial to the
  success of your business to get paid the money
  youre owed on a timely basis. Here are our top
  tips for effective accounts receivable management.

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Accounts Receivable Activities

• Accounts receivable isnt just a number, its a
  process. It starts with sending invoices and
  continues through recording payments as they come
  in, keeping track of due dates, pursuing late
  payments, and checking that the payment matches
  the invoice.

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Tracking Late Payments

• First, you need to be aware when a payment is
  late. Your accounting software should be able to
  generate an aging report, which lists past-due
  invoices in order from least to most number of
  days since the due date.

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• Do this regularly, because the longer you wait
  to pursue payment, the less likely it is that you
  will ever get paid.

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Encouraging On-Time Payments

• Incentivize your customers to pay on time by
  having a late fee policy, which you spell out on
  the invoice (and in the service contract).
  Another possibility is to offer discounts for
  early payment.

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Pursuing Overdue Invoices

• Make an action plan for reminding customers that
  their payment is late. Options include sending a
  past due invoice, writing a letter, emailing, or
  calling to speak to them in person. You will also
  need a timeline for example, send a 2nd notice
  invoice at 1 week past due, email at 2 weeks,
  call at 3 weeks.

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• If that doesnt work, youll need to move on to
  stronger tactics, such as cutting them off until
  payment is made, turning the matter over to your
  lawyer, or selling the debt to a collections
  agency.

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Selling Your Invoices

• Relieving yourself of a delinquent invoice isnt
  the only reason to sell your debt. You can also
  sell current or slightly aged invoices to get
  cash fast or use them to secure a loan this is
  called accounts receivable financing.

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• Finance companies will pay up to 90 of the
  value of an invoice. But they wont touch really
  old invoices, so dont expect to go this route to
  get rid of bad debts.

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• Discuss the pros and cons of accounts receivable
  financing with your accountant or financial
  advisor.

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Writing Off Bad Debts

• If an invoice is 6 months or more past due and
  youve made every effort to get payment, face the
  fact that it probably will never be paid. The
  next step is to write it off as a bad debt in
  your accounting records.

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• You will need the record in order to claim a tax
  refund if youve already paid tax on that
  expected income.

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More Strategies for a Good Accounts Receivable
Process

• Maximize your chances of on-time payments with
  these steps
• Run a credit check before agreeing to supply your
  goods or services to a business
• Get a signed agreement on payment terms before
  starting work

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• Get a personal guarantee which gives you the
  right to sue the business owner personally
  rather than his/her business for unpaid debts
  (save this one for those with a bad credit
  record)
• Send your invoice immediately after work is done

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• Track the customers payment history with you,
  and deal with those who are consistently late
  payers (change payment terms or stop doing
  business with them)

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• Make it easy for customers to pay you with
  options such as debit card, credit card, direct
  debit, or automated clearing houses such as
  PayPal and Stripe

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• As weve seen, your invoices are one of your
  most valuable assets. And for small businesses in
  particular, getting paid on time provides that
  all important cash flow. Smart, consistent
  accounts receivable can be your golden key to
  surviving and thriving.