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Effective A/R Management Tips to Improve Cash Flow

past due invoice

The A/R or accounts receivables account is one of the most liquid of your current assets. A/Rs are sales on credit. They are already recorded as assets in the balance sheet and reflected in the income statement. Many companies consider their A/R good as cash. But the majority of the conservative Brisbane accountants and bookkeepers separate A/R from cash.

Although A/Rs are projected to turn into cash, they can also hold up your cash flow. Mismanaged A/Rs lead to diminished working capital, bad debts, and loss.

Tips to Better A/R Management

1.       Complete and accurate invoicing

Sales invoices should prominently display the due date, the purchaser, and your company details including contact info and address. Also include the terms of sale, the amount payable, and any interest charges applied to overdue accounts. Consult with your Brisbane accountant or bookkeeper regarding the company information you need to put or keep off your invoices and receipts.

paid invoice

2.       Provide easy and convenient payment options

Make it easy for your clients to pay. Provide multiple payment options including online payment platforms like PayPal, cheque payments, credit card, money transfers, and cash.

pay button on keyboard

3.       Offer incentives for early payments

Encourage customers to pay early by offering additional incentives. It is customary for companies to offer 2% or 5% discount when payment is done within 10 days. Others offer higher discounts for earlier payments – 5% within 10 days, 3% within 30 days, and 1% when paid before its due date of 60 days.

running man inside a clock

4.       Adopt A/R ageing

Ageing is the process to effectively monitor maturing A/Rs. Accounts are categorised according to age, or the number of days it is outstanding. It gives you a snapshot of current and outstanding accounts, making it easier to manage A/Rs. Focus your collection efforts on the past due accounts.

filing folders

5.       Require a deposit

Always ask for initial payment at the point of sale. Ideally, the deposit should cover the cost of the product at the least. This policy will help you cut your losses. Made to order businesses like bespoke cakes, gowns, or cabinet fittings can hold off the release or completion of a portion or the entirety of the product until after the bill is paid.

dollar sign on keyboard

6.       Set credit limits

Unrestricted sales on credit can easily boost your sales and income statement bottom line. However, it can also trap liquid assets and diminish your working capital. Put in place a credit policy that will review and qualify clients before extending credit. You can also implement credit caps for newer clients and shorter credit terms for faster collection. Do not extend more credit to clients with outstanding accounts.

credit score assessment

7.       Offer trickle payment schemes

Bookkeepers and accountant in Brisbane see a huge positive effect on sales when trickle payment schemes are offered. Offer easy payment terms or an instalment payment option for your customers. This is very effective for expensive items that people can’t normally afford to pay off all at once. The easy on the budget scheme will improve credit collection.

installment payment calendar

8.       Be proactive in your collection

Do not just wait for your customers to pay. A consistent step-by-step collection process should be implemented. Procedures should include calling the client or sending an email reminder as soon as the account becomes due. After the first reminder and the account is still outstanding, a sterner approach is required. It could be a formal demand letter or an email that includes the applicable penalties. If collection efforts are still unsuccessful, get the help of a credit collection team.

collection letter

Credit sales are unavoidable in most businesses. But you can always manage and monitor credit to avoid losses. Be proactive in your collection efforts and never keep accounts sitting in your files. The credit extensions and collection procedures are unique to every business. Your Brisbane accountants and bookkeepers can help you design an effective credit collection procedure that will best apply to your business.