Accounts payable

Accounts receivable describes the amount of
cash, goods, or services owed to a business by a client
or customer. The manner in which the collection of
outstanding bills are handled, especially in a small
business, can be a pivotal factor in determining a
company’s profitability. Getting the sale is the first
step of the cash flow process, but all the sales in the
world are of little use if monetary compensation is not
forthcoming. Moreover, when a business has trouble
collecting what it is owed, it also often has trouble
paying off the bills (accounts payable) it owes to
others.

MAKING COLLECTIONS Just as there’s an art of the
sale, there is an art of the collection. In an ideal world,
a company’s accounts receivable collections would
coincide with the firm’s accounts payable schedule.
But there are many outside factors working against
timely payments, some of which are beyond the control
of even the most efficient of collection systems.
Seasonal demands, vendor shortages, stock market
fluctuations, and other economic indicators can all
contribute to a client’s inability to pay bills in a timely
fashion. Recognizing those factors, and learning to
make business plans with them in mind, can make a
big difference in establishing a solid accounts receivable
system for your business.
By looking at receipts from past billing cycles, it
is often possible to detect recurring cash flow problems
with some clients, and to plan accordingly.
Small business owners need to examine clients on a
case-by-case basis, of course. In some instances, the
debtor company may simply have an inattentive sales
force or accounts payable department that needs repeated
prodding to make its payment obligations. But
in other cases, the debtor company may simply need a
little more time to make good on its financial obligations.
In many instances, it is in the best interests of
the creditor company to cut such establishments a
little slack. After all, a business that is owed money by
a company that files for bankruptcy protection is
likely to see very little of it, whereas a well-managed
business that is given the chance to grow and prosper
can develop into a valued long-term client.
METHODS OF COLLECTING A good way to improve
cash flow is to make the entire company aware of the
importance of accounts receivable, and to make collections
a top priority. Invoice statements for each
outstanding account should be reviewed on a regular
basis, and a weekly schedule of collection goals
should be established. Other tips in the realm of accounts
receivable collection include:
● Do not delay in making follow-up calls, especially
with clients who have a history of
paying late
● Curb late payment excuses by including a
prepaid payment envelope with each invoice
● Get credit references for new clients, and
check them out thoroughly before agreeing
to do business with them ● Know when to let go of a bad account; if a
debt has been on the books for so long that
the cost of pursuing payment it is proving
exorbitant, it may be time to consider giving
up and moving on (the wisdom of this depends
a lot on the amount owed, of course).
● Collection agencies should only be used as a
last resort.