Constant and stable cash flow is one of the most critical factors in any successful business and venture. All businesses need to deal with day to day operations that incur expenses like payroll, rent, utilities, and other miscellaneous expenses. In order to properly deal with it, they will need cash. However, no business will be able to avoid racking up large amounts of accounts receivable or ARs that can produce major delays in cash flow. ARs are generated when a business offers a credit line to a customer that defers payment to a later date for a product or service. As long as payment is not collected, the account will still be receivable and pending collection and payment. If your business has accumulated a pile of accounts receivable, then you will need to learn quickly how to reduce this pile to dust and get some money revolving back into your business.
- Hire a credit and collections professional. To reduce and even avoid the accumulation of ARs that will heavily affect a business’ ability to compete and do business, then you will definitely need to hire staff that can take care of this problem. A professional that is trained in credit and collections, billing, and accounting should be able to monitor and keep track of your ARs and apply the corresponding solution and collection policies to reduce it. The investment in hiring and employing people with these specialties may be expensive but it will definitely be worth it if you are always bombarded with piles and piles of ARs.
- Automate your system. Search and purchase a billing and accounting software that will assist you in tracking and monitoring your business’ ARs. Software that can provide aging reports when you want or need it. Make it a point to do a quick aging search every 30 or 60 days to see the customers that you need to collect from. With this report, you can have your people follow up on collection and payments.
- Communicate with your customers and vendors. Once you have an aging or AR report in your hands, it is time to contact each person or organization on the list to make them aware that payment is due. Some organizations and people may not have an organized system to track their credit and what they owe. Contact them and remind them to pay up.
- Contract a collection agency. For ARs that have aged way past their due date and has been followed up consistently with no avail, then it might be high time to leave the job to people that are experienced in hardcore credit and collections. There are dozens of collection agencies that you can contract to do the collection work for you. Bear in mind that if you contract these people, they will require a percentage of what they collect for you. This is a last ditch stand on collecting payments before contemplating on legal proceedings.
These strategies, if done in combination and effectively, can greatly reduce the amount of ARs your business has accrued and will convert that into cold hard cash that you can revolve within your business.