Have you ever experienced the frustration of not being compensated for your valuable services or products? Or perhaps you’ve faced the challenge of juggling unpaid bills while holding onto a substantial amount of outstanding accounts receivable? If so, you understand the detrimental impact this can have on your business’s financial well-being. This article aims to provide you with valuable insights to enhance your small business’s cash flow and bolster its overall financial health.
Implementing written best practices for managing your accounts receivable can yield numerous benefits for your company, with the primary advantage being an increase in cash inflows. Strengthening your controls over A/R is the key to resolving cash flow issues, as a sale is only truly complete when payment is received.
The Importance of Establishing Written Procedures
The significance of establishing Written Policies and Procedures cannot be overstated. These guidelines provide a clear reference point for employees handling accounts receivable tasks, aiding in training new staff members as needed. Without documented policies, it becomes challenging to hold employees accountable for non-compliance, as they could easily claim ignorance. Hence, having written procedures not only streamlines operations but also safeguards the overall integrity of your business.
Ensure that your documented policies and procedures encompass best practices in the following areas:
- Managing customer relationships – ensure accurate capture of customer details
- Pricing strategies – implement a structured approval process for customized pricing
- Efficient order processing and Invoicing procedures
- Customer credit assessment, if necessary
- Streamlined collections processes
- Diverse payment options – facilitate returns, discounts, and other payment allowances
Implementing best practices for these essential procedures can help reduce errors and enhance the prompt collection of payments. By improving the collection of outstanding invoices, you can steer clear of the need for borrowing and inject funds directly into your company’s bank account for operational needs, payroll, and other expenses.
While best practices may differ depending on the company’s type and size, there are certain key areas that remain consistent. To assist you in identifying what best practices might entail for your business, a few examples are outlined below:
Best practices for securing a sale:
Consider requesting personal guarantees from customers, especially for high-value products or services, to safeguard against defaults on payment obligations. It is advisable to assess their financial standing and gather relevant information to determine their ability to fulfill their commitments.
Additionally, utilizing UCC-1 filings under the Uniform Commercial Code can aid in the recovery of specific items sold if executed correctly. Seeking legal counsel may be beneficial to ensure precise and accurate filing of the necessary forms.
Best Practices for collections:
Maintaining solid credit policies and procedures can certainly streamline the collections process. However, it’s inevitable that some customers will be late with their payments. Here are some effective best practices to optimize this aspect of your business:
- Personal interaction is key – while emails or letters can be overlooked, a direct phone call can be more impactful. Encourage your collectors to pick up the phone without hesitation.
- Equipping your collectors with relevant information is crucial in addressing potential payment objections from customers. Make sure they have access to details like order history, shipment records, and up-to-date contact information.
- Efficient payment application processes play a significant role in this function. By ensuring payments are processed accurately and applied to the correct customer accounts, you can minimize unnecessary follow-up calls from the collections team.
- Maintaining thorough records is essential – a system that documents conversations with customers regarding overdue accounts enables collectors to track promises made and promptly follow up on any commitments.
- Offering various payment methods is a strategic approach. Providing collectors with multiple payment options can expedite cash flows by reducing reliance on traditional methods like mailed checks. Accepting credit cards, PayPal, ACH, and wire transfers can significantly enhance payment efficiency.
In conclusion, having well-defined policies and procedures that encompass best practices for key functions impacting cash flow is vital for the success of your business.
If you’re interested in a professional assessment of your company’s procedures and tailored guidance on implementing enhanced best practices, click the button below to schedule an appointment
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