March 14, 2016
If you’re a small business owner, you’ll know how important it is to establish and maximise the value of accounts receivable. Doubtless your company is running on a slim profit margin, and to be forced to take losses on this could be damaging to you and your business.
Below are some best practices to ensure that your accounts receivable don’t get the better of your small business:
Set fair and workable terms from the beginning
There are many payment terms for accounts receivable, and it’s important to set the financial terms to benefit both parties. A typical payment cycle for goods ranges from 30 to 90 days; the shorter the term, the quicker you get what you’re owed, the longer the term, the more credit you’re extending to clients. Work out a clear payment contract from the very beginning.
Simplify your method of payments
It’s in your best interests to give your clients simple payment options; the easier it is for them to pay, the less likely they are to delay it.
Transfers can be made electronically and nowadays clients can even make payments while on the move, with mobile credit card payment providers such as PayPal. It may take time to discover which payment methods best suit your clients, and you’ll need to consider such things as ease of use (for both parties), how much it will cost you and how reliable it is.
Give clients an incentive to pay you early
We all know that people are drawn towards bonus and reward schemes. So why not consider offering a similar incentive to encourage your clients to pay you early; discounts are popular along with offers of free delivery, bonuses, loyalty points and even small gifts. Not only could this prove successful in getting your clients to make early payments to you, but they might be encouraged to continue doing business with you and may even recommend your business to others.
Keeping clients and receiving early payments isn’t just what business is about though, what about those clients who don’t pay you on time? Some form of penalty fee could be introduced to counter balance this, but be careful that you don’t end up issuing fines without considering how valuable the particular client has been to you over time. They may have made a late payment, but you might not want to deter them from doing business with you altogether. Make sure that your late payment policy is clear and can be applied fairly to all clients.
Hire an accountant
Accounts receivable are such a crucial part of your small business that you really can’t afford to get it wrong. While many business owners see outsourcing their accounting as just another added expense, it is often the case that an accountant can actually end up saving you money.
Make use of their expertise, and give yourself more time to focus on other important aspects of your business.