Accounts Receivable!! Have you ever heard of it? Well, most probably not. Many startups, as growing, never care about the cash inflow.
You may be wondering what cash flow has to do with accounts receivable. Accounts Receivable is simply the payment that a customer owes when they received a service or product on credit.
Now you may have an idea about the term “Accounts Receivable”.
You know this is one of the major current assets that will balance your organization's cash flow. What if you don't recover them properly from your customers? They can turn into bad debts, which is haunting!!
To be careful, I've listed the common mistakes that every organization does while recovering accounts receivable from their customers. Also, toward the conclusion of this article, I've included a hidden solution to any accounts receivable problems you may have.
Now let's get straight to the point!
Most firms can relate to this!! You would have provided the services or goods to your customers on a credit base and there would be money due. But you didn't enforce any specific time limit to pay back the due, as he/she is a valid recurring customer. This will often lead to unpaid dues which later turn out to be a pain in your business.
If you enforce a time limit, such as a deadline or a due date for your customer to pay the invoice(bill), it would be a wise choice because most of your customers would have paid before or on the due date.
There is no fear if there is no deadline. Without a deadline, no one will take it seriously except you, since it is your business. You have probably considered postponing or avoiding a payment without a deadline at least once in your life.
Sometimes the need you've mentioned for a specific customer isn't appropriate for their business. In such cases, your accounts receivables would remain uncollected. As a result, it is preferable to set a deadline and get a "Promise to Pay" and "NetD" from all clients to whom you sell products or services on credit invoices.
Many of you might miss the early warning signals that can be found in the Accounts Receivable data. These insights can be derived from both business and individual customers. Some provide views on cash flows at the business level.
Do you know what metrics you have to maintain for healthy accounts receivable process?
Days Sales Outstanding
Average Days Delinquent
Collection Effective Index
Best Possible DSO
If you don't, you'll have to deal with some serious consequences that will have a serious impact on your business management. This is a struggle that many firms and company owners have faced. Some were able to realize and overcome these challenges, but the majority were not.
Time – Gone is gone. Now or never!
If you are poor at managing your company's cash flow, you still have time to act and save your company from loss due to poor management and monitoring.
We've all heard the phrase that communication is the key. A powerful conversation may inspire a guy to accomplish things he never thought he could. Similarly, communication is the key to cash flow in every organization. This does not imply that you must be fluent in the language. The confidence and manner through which you communicate about the person to whom you speak.
Your communication strategy may not always be successful enough to convince your customers to pay back their debts. You can't keep track of them all day. It will annoy them, making them even more irritated.
You will also be unaware of the appropriate tone to use while communicating with customers. A company that has an inefficient communication strategy and engages in informal communication will lead the customer to assume that the company is fine with delays. Everyone, including ourselves, believes this.
This reflects a poor accounts receivable process that the majority of the business is unwilling to improve. Poor follow-up or an unpleasant mode of communication will not help you get paid.
Follow-up is frequently done with the same individual. If the same does not provide the desired outcome, you may choose not to escalate. You also neglect to follow up with the customer through various channels such as email, SMS, Phone calls, and Emails. This will result in bad cash flow, making collection much more difficult because you've already exacerbated the situation.
You know what? Most organizations will face cash flow imbalance because of the unrecovered Accounts Receivable. This is due to the poor and decentralized accounts receivable management system.
If you can’t track your accounts receivable process centrally and audit the communications with your customers, there is a chance that you lose total control of your receivables. A business will typically follow up via several channels, such as email, letters, phone calls, and SMS.
You will not record or transcribe a call officially so you can't provide them as a witness during the audit, in case of any payment due from the customer. So, you can't sue the customer legally.
There must be a proper decision and decision maker regarding the customer payment to collect the past due payments effectively. If multiple people have the authority to take and make decisions, no doubt, the accounts receivable process in that organization will be a total failure. This is what a decentralized accounts receivable management system means
Everyone will love appreciation, right? Then you have to appreciate the customers who make on-time payments. Either offer them some freebies, or discounts or treat them with some incentives so that they feel relished for being true and honest.
Create more options for payment. Because every customer will not have credit card options. So you should facilitate more payment options and help them have a safe and secure payment.
Accounts receivable refers to the processes and systems that a company employs to manage incoming payments from customers. Unfortunately, a lack of payment options and incentives can make the process difficult and hurt a company's profits.
One big issue with a lack of payment choices is that customers may find it difficult to make payments in a method that is convenient for them. Customers who prefer to pay by credit card or through an online payment system, for example, may find it challenging if an organization only takes payment by check or cash. This might lead to payments being delayed or missing, which can have a substantial impact on an organization's cash flow.
Another issue with the lack of payment options is that it can be difficult to track and manage payments. If a company only accepts a limited number of payment methods, it can be more difficult to reconcile payments and ensure that all funds have been received. This can also make it difficult for a business to monitor its cash flow and ensure that it has the resources it needs to meet its obligations.
Finally, a lack of incentives in the accounts receivable process might be detrimental. Customers, for example, maybe less inclined to make timely payments if no incentives, such as discounts or rewards, are offered. This might lead to lost or delayed payments, which can have a substantial impact on a company's finances.
Finally, a lack of payment options and rewards in the accounts receivable process can have major financial consequences for a company. To reduce these risks, businesses should endeavor to provide a choice of payment alternatives and incentives that encourage customers to pay on time and consistently.
Apart from the above-mentioned problems, you may witness some more hurdles. What if I tell you a solution that can solve all your problems in just a click?
The answer is "Maxyfi – Accounts Receivable Software". Yes, we can solve all your Accounts Receivable problems.
No time to make calls and follow up with your customers? Not having a centralized Accounts Management System? We can track your customers, give them gentle reminders, and give you the best collection strategies.
You can easily integrate your cloud accounting books with just a click. Not having cloud accounting books? Just upload your accounting spreadsheet and witness our best Accounts Receivable Software tool.
You can learn more about Accounts Receivable Automation by visiting Maxyfi Blogs.