In a perfect world, A/R would always be busy receiving payments from your customers and there’d be no lag between making a sale and getting the payment. But, unfortunately, that’s not the case.
It’s that stretch of time between paying vendors and employees and collecting from customers that can be detrimental. That’s why you need to be on top of effectively managing your company’s cash flow or else everything will sink. Entrepreneur.com lays out good practices to be mindful of.
Projections and measurements
If you aren’t doing so already, start laying out cash flow projections for the next year, quarter or month. It is absolutely vital to start this practice as it will help you and your team understand your company’s financial patterns.
Start by adding cash on hand at the beginning with other cash to be received from other sources. This means you’ll be interacting with other departments in addition to finance: sales, service reps, collections and credit. Remember to ask this question: How much cash from customers, interest, service fees, partial collections, and others are we going to receive and when?
Rev up receivables
Managing A/R effectively can do wonders for cash flow management, and, if done efficiently, can boost cash flow, too.
- Offer discounts to customers who pay bills in full or within the first week of receiving.
- Ask customers for deposits at the time of sales (consider incentives for salespeople who can get big deposits).
- Issue invoices promptly on a regular schedule and follow up immediately over the phone if you sense a problem.
- Instituting a policy of cash on delivery is a good alternative to a flat out refusal of doing business with customers who are slow to pay up.
- Require credit checks on new customers who don’t pay with cash. If they seem flaky, use C.O.D.
