Any transaction at a business where payment is not received in advance (e.g. retail) or pre-sale (e.g. a down payment on a car) will have a customer account which is the billing terminology for amounts owed by customers. It is a good thing to have a customer account as it implies that you are running a legitimate business making money.
The downside of having trade receivables is that they symbolize money that you don’t have right now, and it also means your customers may not pay you. Fortunately, a competent accounts payable system can help you limit the number of unpaid customers and eliminate bad debts.
1. MONITOR YOUR CUSTOMER RECEIVABLES DIGITAL:
The main reason to never use free or low cost billing software is if you don’t have access to a computer or smartphone, or if you are a dodger. The following cloud applications are available for businesses:
- Xero
- Wave accounting
- Quick Books Web
- Google docs
You will be able to stay on top of missed payments once you can track your trade receivables by simply generating a summary through one of the customer account management platform.
2. SALES AND PAYMENTS TO BE FOLLOWED AS SOON AS POSSIBLE:
Sales to customers can be documented as soon as they are made with a solid accounting information system. Your accounting software will then generate an invoice, which can be emailed directly to the customer. You are more likely to collect money if you invoice your customers as soon as possible. A quick invoice is also less likely to cause problems for the consumer, as the goods or services provided must still be fresh in their memory.
By quickly documenting payments, you avoid the risk of unintentional follow-up with a paid account based on incorrect information. Also be open to the options below.
Alternative payment methods:
Offering additional payment methods, such as credit cards, PayPal, or good old-fashioned cash, is a strategy to reduce accounts receivable and extend credit. While credit cards have fees, they are countered by reduced bad debt risk as well as reduced administrative costs because you no longer have to chase after the consumer.
Discounts for early payment:
Offering discounts to your customers is a great way to get them to pay as quickly as possible. One of the most common credit terms is to offer the customer a 2% higher discount if they pay within 10 days of the invoice date, provided all debt is due within 30 days. .
3. CAUTION REGARDING DEFAULT ACCOUNTS:
Regular monitoring of overdue accounts greatly increases your chances of collection. People usually prioritize payment based on the number of issues they expect to encounter, which may cause them to pay faster in the future to avoid conflicts. It’s a good idea to follow up emails with phone calls. You obviously don’t want to disturb a customer who is present.
Ask customers when they expect to be paid, and communication should always be friendly but firm. If a consumer is unable to pay the full amount immediately, it may be helpful to find a payment arrangement.
Finally, punishing overdue accounts can be an effective strategy to ensure that payments are made on time. This can be accomplished by charging an administration fee or charging interest on overdue accounts. We have detailed steps to this type of accounts.
4. COVER AND ALLOCATION OF RECEIVABLES:
Buying insurance to protect against bad debt may be worth it. It works the same as insurance, except it’s more expensive. It is most effective when you have a lot of high value receivables and / or need cash sooner. There are frequently restrictions on the types of consumers who can use the service and the amount of money they can deposit, but it can be a valuable tool in reducing losses.
You can also swap your receivables, which is beneficial if you need cash quickly. This is, again, an expensive option that should only be used in extreme circumstances. A simple internet search will reveal a plethora of organizations that offer both insurance and factoring. Instead, you can call your bank or inquire about a referral from a professional acquaintance.
5. SUBMIT TO A COLLECTION AGENCY:
You can transfer these accounts to a debt collector if you fail to collect despite your best efforts. This is not ideal, however (as some may know) collection agencies are notorious for their harsh collection tactics. They also charge according to the amount collected, so there is no need to pay up front. If you have already deducted the amounts, the money you get back is a bonus. It is also crucial to keep track of these customers so that you no longer sell to them. Offer them a policy for their credibility based on the records below.
Established credit policies:
It is a good practice to check a customer’s resources to pay before giving them credit. Credit checks are expensive, so if you’re selling to a large, established company, you’re likely to be able to bypass them. There are several ways to check a business credit rating in Canada and the United States.
Regularly review trade receivables:
Many small business owners have a good understanding of the amount owed to them. Even though our brains and memories are amazing, it’s a good idea to have a strategy in place to regularly review amounts owed by customers. You should prepare a receivable report on a regular basis (weekly or monthly) and assign it to others or schedule it so that it does not go unnoticed. This allows overdue accounts to be tracked in a methodical manner.
Conclusion
Accounts receivable, or inbound payments, must be managed properly for a growing business to be successful. When money is mismanaged, it can disappear without warning, delaying important decisions and, worse yet, compromising the company’s ability to pay suppliers, meet tax responsibilities, or make necessary expenses. Managing trade receivables is very easy because most customers pay on time.
Setting up a robust monitoring system with frequent follow-up can dramatically increase your chances of getting reimbursed for those who are more difficult. And, no matter how long we’ve been in company, seeing that check in the mail is always exhilarating for many small business owners.
Trade receivables (CR) keep track of money owed to the business. Losing track of trade receivables is a reality for a business that generates significant revenue, manages to keep costs low and maintain successful day-to-day operations.