Better cash flow management is vital for small businesses, and no company wants to deal with overdue invoices. But, it’s often an inevitable part of doing business, and as large corporations have the funding to hire accounts receivable specialists, smaller companies may not have the privilege. However, instead of spending tons of money hiring additional staff, they look to software like Online Check Writer to handle the tasks for a fraction of the cost.
According to a study by Entrepreneur Magazine, about 82% of businesses fail due to cash flow management issues, and the best option they have is to streamline and automate these processes. So, what is accounts receivable, and why does it matter to your small business?
Why Tracking Accounts Receivable is Important
First of all, what is Accounts Receivable? Accounts receivable refers to the balance of owed money to your business from the sales of goods or services, and it is considered an asset in a company’s balance sheet. Accounts receivable tells you how much of your money is held up in unpaid client invoices. As your small-scale business starts to grow and gain trusted customers, you'll face the pressure to offer diverse and flexible credit/payment options. While this may not sound the best move to you, offering credit options in the form of accounts receivable can help you turn around your business and enables you to stay competitive in the industry.
Late payments are increasingly becoming every business owner's greatest nightmare, and if you don't keep track of accounts receivable, you may end up taking the loss. Since small businesses operate on tight budgets, this could negatively impact your profitability, liquidity, and cash flow and jeopardize the business's success altogether. The longer an invoice remains unpaid, the less likely you'll receive payment promptly, and the challenge of successfully collecting the money grows even further. Proper communication, solid internal process, documentation, and choosing the right accounting software for your business can help you stay on top of your accounts receivable.
Benefits of Maintaining Accounts Receivable
When managed well, accounts receivable offer many benefits, like increased sales, customer loyalty, and fewer transactions.
· Customer Loyalty
No matter what industry or business you're involved in, the customer is the center of everything you do. Allowing your customers to purchase goods and services on credit can offer companies a significant sales advantage. This trust will help enhance your relationship and establish loyalty amongst the customer base, which, in turn, can pave the way for potential future sales. Businesses that maintain good relationships with their clients tend to handle the account receivables process much more efficiently. Do you want to know why? It's because your customers want to work with you, and they don’t just see you as "another business" but as a valued business partner.
· Increasing Overall Sales
Expanding your customer base by selling products and services on credit can tremendously impact your business. Offering credit to your customers makes them feel comfortable and could increase the overall sales for your small business. Efficient accounts receivable management can directly influence the overall sales and brings cash into the business before an invoice is due or it becomes a bad debt. However, unpaid invoices from accounts receivable can become a liability, and significant losses may follow.
Tips to Manage Your Accounts Receivable More Efficiently
Here are some much needed tips for small-scale industries to flawlessly manage their Accounts Receivable.
· Document Everything
Accounts receivable are a key part of an enterprise's financial management practices. It's the vehicle businesses use to track and leverage payments properly, and that's precisely why everything regarding it should be documented. Accounts receivable documentation helps your accountant/bookkeeper with timely inputs of financial statements that could benefit your company during tax audits. Lack of attention or inconsistent entries can cause confusions that could break your business.
· Communication With Customers
There's no need to feel bad about following up on an overdue invoice. In fact, keeping communication with clients is absolutely necessary. It is essential to set clarity on payment terms between your client and your company. According to a Transworld Business Advisors article, poor communication between clients and vendors is a leading cause of invoices going unpaid within the first 60 days after delivery.
The longer there is no communication, the longer invoice sits unpaid, and the chances of getting paid drastically reduce. If your digital reminders aren’t enough to make the clients pay, you shouldn’t hesitate to have a conversation. Conversing with customers can help you understand more about the payment delay and give you the opportunity to find a solution that satisfies both parties.
· Use The Right Software
Accounting software offers an affordable solution for businesses to streamline and automate the accounts receivable workflow. Creating and sending invoices, tracking the receipts, and following up on late invoices can be time-consuming. Even businesses with trained accountants can find that a bit overwhelming. Instead of manually tracking each payment, many small businesses have started adopting accounting software, like QuickBooks and Online Check Writer, which provides a user-friendly, highly organized interface for tracking accounting metrics. Businesses and companies that heavily rely on accounts receivable for cash flow should definitely consider adapting a platform that helps them automate the process.
These platforms can take away the tedious, manual processes involving invoicing, follow-up and offers a perfect solution for businesses that don't want to waste money investing in an accounts receivable team or employee. As businesses grow, they tend to get stuck in the same old, slow, manual processes. Most small-scale businesses struggle with cash forecasting and handling the sheer volume of data, range of systems, and the number of clients involved. The presence of a system that could provide accurate and reliable information will have a huge impact on the revenue of a business.
Choose the right accounting platform for your business and reduce the risk of errors and hassles that arise due to manual data entry.
Offering accounts receivable can keep your small business in competition with the rest and help to improve your business's profit margin. On the other side, any mismanagement or errors in accounts receivable will directly impact your business. Managing your accounts receivable is a time-consuming process, but it can help build strong customer loyalty, help you track debt, and improve your cash flow. Choosing an accounts receivable software that you can rely on is a gamechanger for your businesses.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2021 Robert Sullivan