When you own a small business, the way you handle your accounts receivable will have a big impact on your cash flow. Before having some experience with them, the work it takes to manage your invoices might take you off guard. Furthermore, many small business owners will continue to make the same mistakes way too far into the game.
Navigating this tricky subject can be overwhelming – which is why we’ve put together a simple overview of six common things you should avoid when handling your business’ receivables.
#1 Don’t Do Snail Mail
We’ve reached a day and age where nearly everything is done online – and that includes business transactions. This is why it’s so astounding to think that many businesses still resort to sending out invoices and finance letters using paper mail instead of email.
Don’t resort to old fashioned techniques that are now in the past. Paper mail has become inefficient, resource-consuming and a higher hazard for getting lost. For best results, mail out your invoices electronically from a professional business email.
#2 Don’t Offer Only One Payment Option
One of the main reasons a client company might delay sending over payment is a lack of flexibility in the payment terms and methods you’ve established. Too many small businesses make the mistake of offering a single, strict option for issuing payment. In doing that, you not only drive away potential customers, but you can end up with a load of past due receivables and a consequential cash flow shortage.
Be as flexible as you can in your payment options. A client might prefer to pay via Paypal, credit card, an electronic funds transfer (ETF) or otherwise. Research all the options you can make available in order to accomodate a quick and easy response from your client.
#3 Don’t Make Complicated or Risky Credit Terms
Offering credit for your service or product can be beneficial in different scenarios. However, when extended too much, this can be bad news for your cash flow in the long run. Before offering credit terms, always do a background search on your clients’ credit history. If they haven’t been timely with paying their bills in the past, they might not be the best candidate for a credit account.
In a similar vein, your credit agreement should be set in clear, simple to understand terms that the client agrees with, but that benefits your side of the deal as well. Many people make the mistake of being too generous with the amount of credit issued, a lax credit policy or lengthy payment due dates. Stand your ground and reach a deal you’re both happy with.
#4 Don’t Be Too Passive
Maintaining a good business relationship with your clients is very important – but it’s easy to go overboard and start to let companies treat you like a doormat. Chasing clients in order to demand payment isn’t a piece of cake, but it’s something that every business has to go through eventually.
When handling past due receivables, don’t be afraid to be firm, proactive and persistent. It’s always good to be polite, but you should never give up too easily. As a last resort for negligent clients who don’t come through for months on end, you may want to evaluate the possibility of going to a collections agency.
#5 Don’t Wait in Silence
Similar to the rookie mistake of being too passive with clients, sending one invoice and throwing in the towel is a simple and common way to disrupt your cash flow and majorly decrease your chances of ever clearing your receivables. And yet, the act of sending out reminder emails is something too many new business owners shy away from.
Clients are human, too. They often have several invoices to manage and pay, and yours can easily slip their mind. You can’t go wrong with a polite follow-up email inquiring about an unpaid invoice. And if one isn’t enough, it’s absolutely advisable to send more after a certain time has passed. Sign your reminder emails with a company letterhead and time your reminders adequately.
#6 Don’t Underestimate The Importance of Organization
It can’t be said enough times: when it comes to managing receivables, you must be documenting everything. Disorganization will be the death of your sanity and your cash flow.
In most cases, it’s best to choose between two options. You can hire a professional, experienced accountant that will keep track of all your terms, clients and invoices. Or, you can facilitate the process by using an accounting software to manage your receivables, where you can stay organized and get the tasks done quickly and easily. Softwares like Quickbooks are becoming a more and more popular choice amongst small businesses, due to them being both simple and efficient.go back