By Westcourt Blogger
Freeing up working capital can help businesses fund growth, reduce debt levels and lower costs. One way to improve working capital is by managing your accounts receivable.
Many businesses fall into the trap of poor accounts receivable management – from extending credit to customers to ignoring payment terms to guarantee a new sale, these types of behaviour can quickly bring your cash flow to a halt.
Here are a few ways to improve your accounts receivable process:
Create a clear customer credit approval policy
Assign credit limits, payment terms, discounts and return policies to specific customers. Introduce a system to determine a new customer’s creditworthiness, such as background and credit history checks.
Determine situations where credit can be issued and circumstances where credit should be rejected. It is critical to review your credit approval process from time to time, as a customer’s financial situation may change warranting a reviewal of their credit terms.
Establish a billing/invoicing process
Generating timely invoices is a major part of collecting account receivables on time. To ensure billing and invoicing is consistent and sent promptly, consider using an automated system. Sending electronic invoices can also fast track the process as they reduce delivery time.
Streamline the collection process
Prioritise collections by establishing a concise collections process for all staff members to follow. Ensure staff have the skills to collect owing amounts (especially from uncooperative customers) and understand the collections system. To ensure accurate collection of receivables all team members should be informed of any discounts that need to be applied, when payment plans can be negotiated and the overall process i.e. mail or electronic invoices etc.