What your accounts receivable mean to your business financial health

Accounts receivable is one of the biggest financial assets to any company. If your business has financial problems, you need to take a look at your accounts receivable. Almost half of all business have problems with accounts receivable. What some small business owners do not realize is that their accounts receivable can impact their ability to obtain funding for future growth. If you are denied a traditional loan, you can use your accounts receivable to help you obtain a loan.

In order to obtain accounts receivable financing, you need to sell off your outstanding receivables at a discount to a factoring company. This process is often known as accounts receivable factoring. What will happen is that the factoring company will pay you a percentage of the accounts receivable funds upfront. You will be able to collect almost 80 percent of the money in your accounts receivable. This money can then be used to help your company expand or to pay for payroll or other things.

Of course in order to avoid being denied a request for a loan, you need to have good cash management skills. Cash flow is the livelihood of every business. Recent studies have found that 90 percent of all business failures are directly related to poor cash flow management. What often happens to a business is that they sell a product and send an invoice to the consumer. The consumer has the ability to pay upfront for the product or they can pay on a specified date. Far too often, the businesses do not have aggressive associates that are able to collect the money that is owed to the business. This will quickly drain the funds that are needed to operate the business. Some businesses try to compensate for this by selling more products to make up for their accounts receivable. While it is good to sell more products, you still need to collect on the money that is owed to you.

Start by tightening up your due dates. Instead of giving people 60 days to pay, give them 30 days to pay and start adding interest on day 31. It is easier to go without expansion funds for 30 days than it is to go without funds for 60 days. Try to have your customers pay for at least half of their order up front. This money will at least cover the production costs and it can help you avoid worrying about collecting on bad debts in the future.

Monitor your invoicing procedures and follow-up with your collections office. If your clients are having a hard time paying in full, offer small monthly installments. This will keep your cash flow positive, which is a must-have if you need to apply for a loan or if you want to go public with your company.

Poor management over your accounts receivable can destroy your company. Always take steps to make sure you are practicing good cash flow management and that your payment histories with your vendors are solid.

Lenders want to see that you are paying your debtors on-time in addition to being paid by your customers. Organize all your purchases into categories that make it easy to understand. All your customers need to have their own category and it needs to show when they go into collections if they have not paid by a specified date.

Again, if you cannot control your accounts receivable, consider using accounts receivable factoring. It is better to collect 20 percent on a past-due account than to lose all the money. Hire a good bookkeeper and stay in constant contact with them about your accounts receivables.