Ranjith has had very good deals in his business but because of delayed payments, his business has been cash strapped for over 2 months. He had account receivables. This was disturbing the balance in his business and he did not know what to do.
Account receivables to be put in a lay man’s word is the amount of money that an entrepreneur has yet to receive from his business dealings. It is
important that one manages the account dealings of a company well because badly managed account receivables can mean trouble for the entrepreneur.
A few tips and you can effectively manage your account receivables and keep the money flowing into your business.
Set a reminder
It is important that one keeps a list of the account receivables of the company in a place like on the entrepreneur’s desk. This will keep the entrepreneur updated on who temporarily has the cash of the company. It should be noted that the acceptable account receivable age is forty days.
Check your customers
It is important that you do not take account receivables from customers you are not assured will pay on time. Before deciding on having a deal of account receivable you should be rest assured of your customer’s payment history. Check if he is a regular defaulter.
Check credit and establish terms
It is important that one grants credit with care. An entrepreneur should design and use a credit application and make every customer fill one out. Then again it is important that an entrepreneur first emphasizes on establishing credit terms and then make a sale. When a customer wants to carry his receivables for long periods of time then it is your signature on the bank’s guarantee. If the bank won’t back off its terms, nor should you.
An entrepreneur should have a sales contract that provides the legalese that one requires to collect the money in court. The sales contract should have the important details like the payment terms, late payment charges and collection procedures. If you have an officially signed sales contract then it will not be difficult to get your account receivable easily. A sales contract will also make the customers fiddle less with the payment. One should also get financial statement from the customers. It is a loan that you are giving to your customers and loans require financial statements. The financial statement will let the customers know that they cannot fool the entrepreneur and that they will have to pay up.
Up front money
If you think that the customer is not going to pay up, you should ask for upfront money. It will keep the professional customers but the customers who did not intend to pay will go elsewhere. This will keep you away from dealing with the wrong customers.
One should have a carrying charge with the account receivables. This will make the customers pay on time.
Managing one’s account receivables will save you from unnecessary financial hassles that you may otherwise come across.