For any business firm to blossom and grow, understanding customer demands and meeting their satisfaction is vital. To do this, the firm should maintain a healthy balance between the growing demands of customers and the increase in responsibilities that are bound to follow. This will strike the chords of harmony that will allow for required growth and stability of the firm. And as the customer base expands, so will expand the need for lucid financial accounting that will have to be competently dealt with. An effective system of managing accounts will strengthen the financial base that will serve as the crux of the company’s foundational advancement.
Here, understanding the ebbs and flows of receivables will help in resourcefully identifying the various sources of revenue from which they are either generated or choked. This will also help in classifying the strengths and challenges of the company, providing kaleidoscopic insights to assess and channelize the productivity variants. The need to manage accounts receivable (A/R) only validates itself with these factors. An accounts receivables report can be used as a barometer to assess the financial health of a company in conjunction with accounts payable. It is not only about maintaining a record to tally the income generation, but a system that can competently tackle dimensional issues of productivity is the key to strengthen your financial hold. Some of the perks and perquisites of timely management of accounts receivable are:
- It can help build stronger bonds with clients and customers.
- It will help sustain a healthy cash flow.
- It will help avoid delay in settling suppliers’ dues.
- It will earn interest in the respective bank account, as an added bonus.
- It will help in better prediction of cash flows.
- It will help ward off unforeseen expenditure without much hassle.
- It will help plan ahead and sketch prospects for the future,
The aforementioned points make up some of the crucial cornerstones that help build and sustain successful businesses. Cash flow management is highly critical for small businesses.
According to a study cited in Entrepreneur Magazine, a bank found that as many as 82 percent of businesses fail due to cash flow management issues. As obvious as it may sound, one of the most effective ways to establish sustainable cash flow for your business would be to proactively manage your accounts receivable. Here are few tips that can help avert cash crunch and ease cash flow:
1. Assessment of Customer’s Credibility:
As much as it is important for a company to bring in new customers, it is also important for the company to study and assess the credibility of the customers. Before extending credit, a company should have a mechanism in place that is both preventive and curative in nature and helps:
- Assess the credibility/credit-worthiness of the customer.
- Provide conditions that clearly define the terms for A/R.
- Setup repayment timing and options as per remedial conditions.
- Plan around A/R patterns, with available customer patterns.
2. Prompt and Punctual Invoices:
Prompt and punctual invoices are a pleasure to the eye. Customers dread lingering amidst the uncertainty between the payment gateway and the acknowledgment of payment for a certain service. On a basic level, promptly sending your invoice reinforces the image of your company as professional and thorough. It also subtly notifies the seriousness you attach to payments. Customers are less likely to delay payments to a company that take accounts receivable seriously.
3. Monitoring Accounts Receivable:
Generally, upon the reception of the invoice, customers are given a certain window to settle the due. Setting up a robust calendar like mechanism that not only tracks individual deadlines but also alerts for appropriate follow-up actions will help forecast the incoming cash flow better. Follow-ups can help reveal oversights, payments lost in the mail or other issues. It can also flag a problem early in the process so that you can determine the best way to move forward with collecting payments.
4. Collections and Corrective Actions:
With a proper follow-up mechanism in place, foreseeing an account heading towards trouble becomes easy. In such a scenario, preventive or corrective measures can be initiated accordingly. There are numerous ways in which delayed payments can be handled. For example, granting a brief grace period in exchange for a minimal interest or a convenience fee. There can be a multitude of scenarios that may ensue along these lines. An early understanding of these issues will help reduce unnecessary ramifications.
Auto-Pilot: Velan Bookkeeping
Caught in a myriad of impending deadlines that has you reeling under pressure? With so many lines of records to keep track of, losing sight of the bigger picture? Sit back, hit the “Auto-Pilot” button and grab that coffee you never could make time for.
Velan bookkeeping, with highly experienced accountants at your disposal round the clock, we cater to all your accounting needs. From notifying you at the earliest onset of any account heading south, all the way to drawing up sensitive, concurrent remedial measures, we’re in for the long haul. Breaking it down, some of the services we offer are:
- Timely generation of invoices and effective distribution;
- Follow-ups and Co-ordination with collections team when necessary;
- Generation of reports, predictions, and forecasts;
- Receiving and logging payments;
- Maintaining efficient archives.
Call us today! And unshackle yourself from the cataclysmic commitment of chasing deadlines.