By Samantha Garner | August 11, 2012
Managing accounts receivable (what people owe you) and accounts payable (what you owe others) is an important skill to master. Here are some tips for successfully keeping your cash inflows and outflows moving along smoothly.
Staying on top of your accounts receivable
The most critical aspect of cash management in a small business is collecting accounts receivable as quickly as possible. No matter how good your business relationships might be, giving credit to your customers means your business can wait even longer to see income. If you decide to offer credit, then you’ll need to establish and enforce credit policies. Of course, we’re not saying you have to break thumbs – here are some violence-free ways to make sure your accounts receivable isn’t a dead end:
- If you send out invoices, be clear about payment deadlines (30 days, 60 days, etc) and penalties like an interest charge for overdue accounts.
- Be organized and send invoices out immediately following the sale of your product or service.
- Review all accounts receivable customers regularly to identify businesses who are always late paying you. You may decide not to extend those businesses credit – or even cease doing business with them in the future.
- Provide incentives for prompt payment by offering future discounts.
- Make it easy for customers to pay you – provide a stamped, self-addressed envelope with your invoices, or investigate ways to accept online payments. Certain billing applications, like Freshbooks, have this feature built in.
- Get on the phone to remind customers or businesses about their payments due. Be polite, but don’t worry about seeming pushy – it’s business! You can bet they have to do the same thing in their own businesses.
Paying your invoices on time is just as important as collecting payment from others. Make note of when payments are due, and try to make those payments on time so that you don’t face penalties for delinquent accounts. Delinquency can also have an effect on your company’s credit rating, which can result in you or your company being charged higher interest rates on future loans.