Improving receivables

Most businesses allow their customers to receive an item and then pay for it 30-60 days later. Since this is a standard procedure, many businesses have cash flow problems because their customers do not pay for the items in a timely manner. If you required payment the moment you sold the products, then cash flow problems would not exist. Proper management of your receivables is necessary to keep your business running effectively.

Here are some tips that may help you improve your receivables:

Require customers to make a down payment for a product or service. If you can cover your break-even costs, waiting an additional 30 days for the rest of the payment won't hurt your cash flow as much.
Start offering discounts to customers that pay their bills quickly. This is a great way to encourage them to keep shopping and it's a wonderful way to get your money quickly.
Send out a statement the moment the product leaves your facility. Always include a bill in the actual package and make sure the customer receives a statement less than 5 days later. Some businesses will send 2-3 statements a month to remind the customer that payment is due.
Charge interest on payments that are over 30 days old. Once a customer realizes you will charge them more money for a product they got "on sale", they are often quick to pay.
Run credit checks on new customers that are not paying with cash. This will protect you from late payments or from customers that don't pay at all.
Flag accounts that are more than 30 days old and require customers to pay the balance before they can order a product again. This is a great way to collect your money and get rid of the customers that try to avoid paying their bills.
Sell off old inventory for a discounted rate. Having inventory on your shelf for too long will destroy your company because it ties up money you have already invested. Try to avoid keeping more than 3-6 months supply of inventory at one time.

If you still struggle with your receivables, there are some alternative options to try. Many businesses have used factoring companies or a process known as total quality management or TQM. Both processes are designed to improve collections and reduce bad debt. This helps your cash flow because you have more money available now instead of in 60-90 days or longer.

Factoring is a process where you will sell off your old invoices for a lower cost. Instead of making 100 percent of the revenue, you will make about 85 percent of the revenue. Normally the invoices you sell will be the older invoices that are hard to collect on. The factoring company will provide you with the money today and they will deal with the collections process to obtain the money they already invested plus their 15 percent. If you do a lot of business or you have larger invoices, factoring is a wise decision because you will be able to collect most of the money instead of losing all of it.

TQM is a little different. Instead of simply focusing on receivables alone, it focuses on organizing the entire company to improve efficiency. It is based on putting the customer first and focusing on customer needs before company wants. Implementing TQM can help your company identify the potential problems you are having with receivables and find out some solutions before you lose your business. While TQM does require more time to implement, it will help to resolve your receivables problems and help your entire company run efficiently.

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Improving receivables