What are the main problems in managing accounts receivable?
Good accounts receivable management is one of the easiest ways to ensure healthy cash flow for your business. Unfortunately, not all companies know where to start with debt collection, or simply indulge in bad habits. It is therefore necessary to put in place a policy for the collection of trade receivables.
Accounts receivable are what keep a business running. Improve your financial strategy by checking if you have any of these 10 signs of poor accounts receivable management, and opt for a debt collection solution.
1) Too high a DSO
If your DSO cycle is long (number of unpaid days), your company is most likely offering customers a lot of credit. If you leave invoices unpaid for too long, you risk not recovering 100% of what you’re owed. What’s more, if your DSO tends to fluctuate frequently, you’re probably not planning ahead financially. This is normal for a small fluctuation, but not on every bill.
2) Invoice disorganization
If you know you owe money but don’t know when or from whom, you have a serious accounts receivable problem. Each month, you should keep track of the invoices due. This is one of the most important credit management functions. Make a note each month of who pays late and whether this is a habit for them.
3) No credit policy
Although companies may be willing to do business with you, there’s no need to get involved right away. Do a background check and credit check to see if you can trust this company to pay you on time. With a credit policy in place, it becomes common practice to check the credit of new businesses, and even to check long-standing customers from time to time. Some debt collection software offers a customer scoring tool. It shows who is a good payer and who is a bad payer.
4) You don’t do customer follow-ups
Communication with the customer is essential to ensure you get paid on time. You need to know when a customer was last contacted, by e-mail or telephone, and what the response was. If you have been in contact with a customer and have created an agreement for his invoice to be paid, it is advisable to treat this customer differently from the no show, no call, no payment customer. Without keeping track of customer communications, it’s hard to keep everything in order.
5) No one in charge of collections
If there’s no one keeping a close eye on your accounts receivable, there’s definitely a problem. In the absence of a designated person to monitor accounts receivable, many customers are sure to escape with payments more than 30 days overdue.
6) To be paid 90 days later
Invoice reminders and collection calls should be sent in 30-day blocks – even earlier if you can! If you wait three months before contacting a customer who hasn’t paid, they probably won’t take you seriously.
7) At the bottom of the ranking in your field
Each industry has an average DSO. For some, it’s quite quick, for others it can be intimidating. Your DSO should be at or above the average for your sector! Make sure you don’t fall behind other similar companies.
8) You don’t use task automation software
All the above tips are everyday tasks that can be automated. Perhaps you’ve read this list and thought, “I do all this, so why is my cash flow always so bad?”. It’s probably because you’re wasting your time doing a lot of simple but tedious tasks.
These tips are easy to take and do every day. Implementing a receivables collection policy through accounts receivable management is the easiest way to ensure that your company has a healthy cash flow. These are easy habits to create, and even easier if you automate them with the help of accounts receivable management software.
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