Accounts Receivable Best Practices
Poorly managed accounts receivables is a common cause of cash flow difficulties. Given that cash flow management is essential to your business, you should not assume that since a client has purchased your services or product will pay in time. Note that if your customers delay in making payments for products they obtained on credit, you may be forced to use your cash reserves to fund daily operations.
As delinquent accounts get old, the chances of collecting your money get slim. Such accounts could later become bad debts – the debtors may not pay (Also see Accounts Receivables and Bad Debts Expense). And of course, if you tie more cash in receivables, you are likely to have less cash to run your business.
Here are best practices to enhance how you handle your accounts receivables.
Review the accounts receivables regularly
Keep records of your receivables and follow-up on any account that has exceeded the predetermined payment period. For client who use our accounting service in Singapore, you will get an receivable aging report that shows the summary “age” of the outstanding debt using the information we obtained throughout our bookkeeping processes. Ensure that you review these reports regularly to see what you have received and what’s outstanding. Such details will enable you to know the best follow-up strategy and prevent chances of not getting paid.
Email services are fast and reliable. Sending email invoices to your debtors ensures that they receive the invoices in time. With that, chances are you will receive your payments early.
Shorten your payment terms
Gone are the days that businesses used paper checks which caused delays during transfers. However, with the widespread electronic payment methods, and email communications, you can consider shortening your payment terms to ensure that you receive your payments early.
Establish credit policies
If you opt to sell on credit, it is important to evaluate the customer’s creditworthiness and his ability to pay (Also see Managing Accounts Receivable Could Save Your Business). This will help you to extend credit services to only clients who are likely to pay and avoid bad debts.
For the unpaid invoices, follow-up via phone calls. Note that emails and paper letters are less effective because they don’t engage the debtor in conversation. Speak with the customer directly to find out if there could be any problem in making payments. Also, phone conversations can help in convincing the customer to pay without ruining your relationship with the customer.
Accounts receivables are important to every business in Singapore as they have a direct impact on the cash flow for every business (Also see Accounting: Cash Flow Forecasting Mistakes to Avoid). Therefore, it is important to adopt good practices when dealing with the receivables to ensure that you get paid in time.