Cash flow is crucial for most companies of any type and size. We’ve all have heard the saying, “cash is king”. It’s true, for without cash flow, we would be unable to pay employees, other overhead expenses and acquire inventory that’s essential to cultivating more profits.
Companies with optimal cash flow have mastered the balance between payments going out and payments coming in, in addition to having processes that allow them to anticipate many cash flow threats before they happen. So it follows that one of the most effective ways to establish a sustainable cash flow for your business is by proactively managing your accounts receivable.
Yet, this is a task many businesses struggle with. In fact, in a prominent study, U.S. Bank found that as many as 82 percent of businesses fail due to cash flow management issues.
Further crippling is collecting money from your customers can often present major obstacles. The magnitude, persistence and complexity of these problems prevents businesses, large and small, profit or non-profit, from achieving their full potential.
The good news is that staying on top of your receivables is a reasonable goal to accomplish and cash flow problems are largely avoidable with a clear strategy. To help, here’s a checklist for managing your receivables so they don’t put pressure on your cash flow:
CREATE A POLICY: Every business has a credit and recovery policy, but if you don’t create one yourself, your customers will do it for you. Stay in control and create a model for your company that works for you and entices customers to do business with you. Keep in mind that being too generous with credit terms can damage your own company’s cash flow so it’s important to strike the balance between meeting customer needs and creating a plan that allows you to walk away from business that is an unnecessary credit risk. It’s best to put it all in writing and have all of your customers sign it, indicating they have accepted it.
AUTOMATE: If you are a businesses that relies on accounts receivable for cash flow, ditch paper forms and opt for automating AR and collections management business processes. Automating accounts receivable and collections process workflow is a more efficient sequence of activities that provides benefits from end to end, including faster payments, improved customer service and the freedom to focus on other areas of your business.
MONITOR YOUR RECEIVABLES: Research effective tools for actively monitoring your accounts receivable. If you’re always in-the-know on how much money is tied up in receivables, you can act more precisely in other areas of your business and follow-up immediately when a payment is running late. Acting without delay will give you the best chance of collecting monies owed.
DON’T WAIT TO FIND A COLLECTION AGENCY: Your receivables policy should determine when a third-party collection agency gets involved. Often those that choose to handle late payments on a “case by case” basis, never get turned over to collections and they go unpaid, drastically impacting your bottom line and cash flow. While working with a collections agency or a lawyer is usually the final step in collecting delinquent payments from a customer, it’s important to have a plan in place for your business and a collection agency in your back pocket when these situations occur.
Please visit Dynamic Legal Recovery’s website or call us at 877-777-7564 for your complimentary evaluation.