How Do You Manage Receivables In Your Small Business?

In any business, it is common to encounter receivables especially if your business accepts credit payments. However, the credit payments remain crucial in attracting more consumers as cash payments alone limits the potential consumers. A common problem, in this case, is the difficulty in handling the receivables. In some businesses, aging of receivables takes more 120 days, which can be a long time for small businesses as it could adversely affect the cash flow. Given such, it would be essential for you to know how to handle such. Below are some pointers that you should keep in mind. 

DSO

Also known as the Day Sales Outstanding, it is metric used to measure the effectivity of the business in collecting its receivables. Although the standard number of collection days varies depending on the industry where you belong to, you should make it a point to craft your own standard based on your business needs. Ideally, this number should be kept at the lowest number possible; however, according to studies, the DSO commonly ranges from 15 to 45 days. In case your DSO falls beyond the normal range, you should already do something about as it can negatively affect your business. 

Credit Policy

Establishing a credit policy will greatly aid you in managing your receivables. In creating one, you should consider your consumer records and your business’ bank transaction history. Through these two factors, you are in a position to create a structure for your credit policy. At first, you might find yourself staring at consumers whose records do not fall under your newly developed credit policy. In this case, you should make it a point to stick to your policies. No one should be above and beyond the business policy that you created. Otherwise, there is a higher probability that you will suffer financial losses.

Aging

In any business, it is crucial for its accountant to create a report on Aging of Receivables, that categorizes the receivables based on the number of days that they remain outstanding. It can be 15 days, 30 days, 45 days, 60 days, 90 days, 120 days, or even beyond it. Through this, you will be able to review the outstanding receivables of your business and you will able to determine which clients to call for payment follow up.

Be Bold

The most important thing is for you to be bold. Do not be afraid to ask and follow up payments. Remember, your business largely depends on these receivables. Do you want to be in a brink of bankruptcy because your financial status stands at 10% cash and 90% receivables? That will be the looming end of your business, you know. So don’t chicken out. But in case you do, you can contact the business debt collector in Brisbane to help you reduce your receivables. After all, it’s nothing personal since business is business.

Discount

You can also offer discount programs wherein if they pay in full, they get a payment discount. This will encourage your consumers to pay ahead of time, rather than letting their payables stand for such a long time.

Managing receivables can be a difficult job to undertake as it requires patience and audacity. Then again, there’s nothing wrong with the collection as this is the amount that is rightfully due to you so don’t be afraid to collect your receivables.

 

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