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Tips for managing small business accounts receivables

One of the biggest challenges when you are a small business owner is how to get your clients to pay you on time. Managing your accounts receivables is a crucial part of keeping the finances of your small business healthy. Many small business owners are often unsure of how to get their customers to pay promptly so they end up waiting while their business finances suffer. This can be difficult for small businesses that have a limited cash flow. However, there are things that you can do that will help to insure that your customers pay much more promptly. Here are some tips for managing small business accounts receivables-

- Be choosy about who you extend credit to-Many small business owners think that they need to extend credit to every customer or they won't make a sale. This is not necessarily true and falling prey to this can seriously affect your business finances. You need to be extremely careful about who you extend credit to. You should take the time to get know your customers and do a thorough investigation before you make a final decision about credit. You should never extend credit to customers who have any sort of a questionable credit history. This is a problem that can leave you with lots of collections.
- Ask for a deposit-If you want to insure that you receive timely payment you may want to consider asking for a deposit. Your customer will feel much more urgency about paying the rest of the bill if they know they have money already tied up with their order. It also improves your cash flow since you do not have to pay upfront for all the orders that you are doing. Keep in mind that most deposits are in the 15-50% range.
- Make sure that every customer knows your payment terms-It is crucial that every customer clearly understand what your payment terms are. You need to let them know in very concise terms that you require timely payments on any orders that they do with you. In addition, you want to make sure that every invoice that you send has your payment terms where they are highly visible along with the due date. This will help to remind your customers that they need to pay by the due date or there will be a penalty. It can also be helpful to let them know how you figure the interest on any unpaid balances. Keep in mind that often a small incentive for paying early can bring in faster payments, as well.
- Bill right away-Many small businesses have found that billing when the order is taken can often mean faster payments. The bottom line is that the sooner you send out a bill the faster you will be paid. The longer it takes for your customer to receive your invoice the longer it will take them to pay it (even after they have received it). Think of your invoice as the physical reminder that they need to pay their bill right away. If you have not received payment in full the next invoice should be sent out about a week after the order is shipped. This will keep the bill on your customer's radar.
- Have a procedure in place to follow up-The bottom line is that you need to follow up with your customers when they are late if you expect them to take you seriously. The best thing to do is to have an established system in place so that you will know how to contact them and when if they have not paid on time.

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