How your accounts receivables affect your business finances

Do you know much about your accounts receivables? Your AR department directly relates your business finances as they are in charge of receiving the money to keep your business afloat. If you company will sell a product and then accept a check, money order or purchase order, you may be looking at "floating money".

What is your company's policy on invoicing? Do you allow your customer's 30 days to pay or longer? Are there fees applied if payment is late? You need to make important decisions for your accounts receivables department to keep your business afloat.

Let's say you have 20,000 dollars waiting to be paid to your account receivables department and your company needs to purchase some supplies; you will need to make the decision if you should wait until the payment comes in or use your credit to purchase materials. Cash that is tied up in your accounts receivable is not available to be used elsewhere.

Maintaining a delicate balance with your customers and your accounts receivable department is important. The tighter your credit policy you will have less cash tied up in accounts receivable and fewer bad debts, however this can negatively affect your sales and reduce your profit levels.

If you're a company that has larger clients that have larger debts in your accounts receivables, you are looking at a harder collection process. If your AR department has a 10,000 bill pending with one client, it can put you out of business if this is not paid for 3 or 4 months. Having smaller clients with smaller AR amounts, it is much easier to manage and collect 4,000 dollars than 20,000 dollars.

Having your accounts receivables department cooperate with your sales staff to concentrate on increasing immediate payment will help the cash flow situation. Asking for a credit card payment is easier to have money deposited today rather than waiting for a payment from a purchase order that can be pending for a longer amount of time. Also having your sales staff focus on smaller orders can help your company pay for operating costs as it is easier for your AR department to collect on smaller debts from your customers.

Your AR department will affect your business finances by having the right staff. If you have a good person who follows up with old purchase orders and bad debts, they are more likely to require a payment today or within a week or they can threaten collections.

Having your AR department look at current economic conditions will also help in determining the proper amount of time they can put on invoices. If the country is in a recession you may have a harder time collecting on past due invoices than you would in a time when your customers are increasing their sales.

Your accounts receivables department needs to have an aggressive invoicing policy. Making it clear to your clients that they only have a certain amount of time to pay their invoice before they will have a penalty for a past due invoice. Here are a few policies to take into effect with invoicing:

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• Invoicing time - Having a certain amount of time for your pending sales need to be clearly laid out for your customers.
• - Large sales - Invoice large sales immediately. Send an e-mail invoice and a mailed invoice the day you create the invoice.
• - Invoice Date - Date the invoice the date you get the sale and not the date the order is shipped.
• - Statements - Send your statements within one day of the billing cycle.

In the end, you know your customers best and you should know your accounts receivables policies and discuss how it affects your business finances. A regular review of customer accounts receivables will help you identify customers that are behind or a high risk and in the end will help keep your business afloat.