Your company’s cash flow determines your organization’s future success. When you can maintain good cash flow, then you can meet your company’s financial obligations and you can also attract investors and lenders to help you fund larger projects. If your cash flow is poor, or even negative, then your company is in serious trouble and you may not be in business much longer.
Your sales organization generates the revenue and your accounts receivable department generates the invoices. It is also up to your receivables people to collect the funds from customers to pay off invoices and keep the company’s cash flow moving along. In order to have a successful organization, you need to find ways to streamline your receivables and collect the cash from your clients.
You can get a lot of the preliminary collections and receivables issues out of the way early by making sure that all of your customers understand payment procedures and the penalties for late payments. You can print these conditions on the invoice and try to use a font that is large enough, and you can send along a separate sheet with every order that explains the payment procedures.
Some customers who decide to pay their bills late may try to delay the process by claiming that they did not know the payment options or the penalties for late payments. Some may also claim that the due date of the invoice is not clear enough to be legible. If you take the necessary steps to avoid all of these issues immediately, then you can help to speed up the receivables process.
One of the hardest things to do is to punish a customer by stripping him of his credit terms and forcing him to pay for orders in advance. Another problem is when your customers start to talk to each other and they realize that you have an inconsistent receivables policy that allows some clients to pay bills late, but punishes others.
You need to have clear receivables policies that your associates can use when discussing issues with clients. When a client is habitually late with payments, you need to have consequences that will inspire that client to make payments on time. Those consequences, such as loss of credit terms, need to be clearly outlined in the company policies so that there is no confusion among your staff or your clients.
The cost of an accounts receivable and collections department can be very high. Along with the cost for salaries, there are office overhead costs and the cost for the technology you will need to run the department. To add to those costs is the cost of outstanding invoices to your organization. The interest involved in carrying overdue invoices can add up and cause your company a significant amount of financial grief.
One of the alternatives to having your own receivables group is to run your receivables through a factoring company. This is a professional organization that will fund your invoices and then take on the role of following up on collections when needed.
A big benefit of using a factoring company is that your company will always get reimbursed for its invoices on time. Whether you use advanced factoring which pays you instantly for a large percentage of your invoices, or maturity finances which pays the entire amount when it is due, the factoring company will make sure that your organization always gets its money on time.
The fees and interest charges associated with utilizing a factoring company can be much lower than the costs involved with maintaining your own receivables group. The other advantage to utilizing this method to collect your receivables is that you never have to worry about the additional interest and finance charges associated with late invoices.
Collecting receivables from your clients can be a difficult and expensive process. If you choose to have your company collect its own receivables, then there are tips you need to follow to help collect the money as soon as possible and reduce the financial effects of overdue invoices. If you want to have a factoring company take over your receivables for you, then you will have access to your cash when you need it and you can eliminate the concerns that come with collecting invoice revenue from your clients.