Accounts Receivable Challenges For Small Business


Accounts receivable is an ongoing challenge that has a particularly profound impact upon small business owners. The lack of consistent and predictable cash flow places many businesses in jeopardy. While every business needs sales, getting paid on time requires upfront planning, establishing credit policies and having systems in place to make collections more efficient.

How To Improve Your A/R Collections

Arguably the most critical function of any small business is Accounts Receivables (AR) for the simple reason that a business needs a steady influx of funds to survive. The ability to get paid in a timely manner is more crucial for the typical small business that traditionally has limited access to outside capital.
Failing to effectively manage your AR will turn your business from supplier to banker and that’s not the relationship you want with your customers. And rest assured, given the slightest opportunity your savvy customers will leverage the extension of credit to it’s furthest extent.

How To Remain A Supplier Instead Of A Banker

It’s critical that you keep your Days Sales Outstanding (DSO) as low as possible. To accomplish that you need a system to insure your AR process is a productive one. A significant contributing factor is reducing the number of risky customers that present a significant challenge in getting paid.

It’s never been easy to effectively manage the accounts receivable collection side of the business, it is however the lifeblood of your business and you need to get good at it.

Steps to Reduce DSO

Invoice Accurately and Expediently:

Verify the complete contact information including:

  • Complete Mailing Address
  • Contact Person and Contact Information
  • Contact’s Direct Phone number
  • Contact’s Mobile number if possible
  • Contact’s email address
  • Friend on FB and use FB Messenger

Sending Invoices:

  • Mail the invoice promptly
  • Email the invoice / use electronic invoicing if possible
  • Use email tracking software to confirm email was received and opened
  • verified before bills are sent out. If you find that the manual process is taking too long, consider electronic invoicing.

Follow Up
Make sure you follow up to make sure the invoice was received and to address any questions and immediate resolve any potential issues

Clearly State Payment Terms
Consider offering discounts for immediate payments or payments within 10 days for example

Provide Multiple Payment Options

  • Credit and Debit Cards
  • Paypal
  • eCheck
  • Paper Checks
  • Recurring Authorization
  • Online Payments
  • Be Prepared To Take Payments Over The Phone

Increasing Your Efficiency

If your business is like most, you’re using your accounting software to manage your A/R. Therein lies the problem. Your process needs a more robust communication tool than most accounting software provides. Accounting software is great for creating invoices and recording payments, but often falls short as a receivables collection tool.

Electronic invoicing combined with online payment and scanner or fax generated check processing can expedite the collection process. This level of automation has the power to transform your receivables collections from a reactive to proactive process which will enable your staff to pre-empt customer disputes or payment delays. Scanner based processing of check payments eliminates the need for paper storage and provides searchable record keeping.

Reducing Risk Through Credit Reference Tracking

The first step in reducing receivable risk is to properly underwrite a new customer. It’s crucial when extending credit to a customer, that you do so effectively so that you establish an accurate credit profile. Be sure to verify the customer’s credit references asking specific questions as to the customer’s credit line and payment history.

Keep the credit profile up to date by monitoring your customer’s payment history. Make note of any discrepancies from the norm and particularly any delays or payment shortfalls. It’s important to keep the contact list current and engage with the customer on occasion, if not frequently.

Reviewing your account status regularly, which may mean daily or weekly can help prevent problems. This would definitely reduce your balances over time. You would also be able to resolve problems before they become disastrous.

Increase your bottom link profits by 20% in as little as 14 days.
Call 877.338.0912

GMB Guide Appendix

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