Due to the current epidemic, cash flow management should be taken seriously by any organization regardless of size. The most effective method to manage the receivables of a business is to turn them into cash as fast as is feasible. This is here that accounts receivable management comes into the picture.

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Brief on Receivables and Accounts Receivables

The term receivable is used to refer to “the amount of payment that is yet to be received.” This indicates that the company provides credit options to its clients. Accounts receivable are the equivalent in monetary value to the price a company sells goods and services, and the rights to be paid after the expiration of a specific time.


When a company does work for a customer Y it owes that customer money. The record of account receivables is an illustration of this. Credit periods can last anywhere from one month to one year.

Importance

Accounts Receivable is a major component of any company’s assets. It is a key factor in the creation of cash flow in the books of the company. This is crucial as it will affect the future cash flow of the company. The company offers credit facilities to the customers to ease the transaction process and establish an excellent credit relationship with the customer. It allows the company to get better deals. Investors are attracted by it because they can examine the company’s history of collection and decide whether they are interested in investing.

Accounts receivable management can make or break a business. If the customer is late paying, the company can end up with a deficit of cash. Eventually, the business cannot pay its own bills and continue its functions smoothly.

Experts agree that 90% of sudden business closures are due to cash flow issues. These cash flow shortfalls usually occur by accounts receivable that aren’t properly managed.

The prevention of such incidents is essential for any business; hence they must efficiently manage their accounts to increase working capital and avoid any catastrophic cash flow issues.

Every business wishes to buy low and sell high. However, they possibility of everything being destroyed if their accounts receivable management does not improve by the point of completion, i.e. when payment is received. Poor management of accounts receivables has been responsible for more than half of bankruptcy cases. This involves more than simply reminding clients to pay their bill in time. It involves figuring out the reason the customer hasn’t paid and the loopholes that contributed to the customer not paying for this step. Could it be due to administrative mistakes or because the customer did not receive any product or services?


Proper control of accounts receivables in a intangible asset valuation is a process comprised of the following components:

  • In advance, determining the credit rating of a client
  • Monitor and scan customers frequently for credit risks
  • Maintaining positive customer relations
  • Detecting late payments in due time
  • Detecting complaints in due time
  • Reducing the total balance outstanding (DSO)
  • Stopping any bad credit in receivables remaining

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Tips for managing receivables accounts

These may seem like normal practices, but many companies don’t follow them. Here’s a list of things we discovered:

  • Do not extend credit to just anyone:

You need to run a credit check and verify a customer’s identity on the credit market prior to agreeing to do business. Many corporate clients are able to access their own credit accounts, and can supply all the necessary information needed to conduct business. It is perfectly acceptable to refuse credit or ask for payment upfront.

  • Get a Personal Guarantee:

It is important to request a personal guarantee when doing business with corporate clients. This covenant will establish the authenticity of the relationship and ensure that payment has been completed by the client in time.

  • Written Terms of Payment for First Order of Business:

It is essential to get all payments in writing before beginning business with a client. Informing the customer of the approximate time needed to make the payment as well as late fees and interest terms, as well as the exact payment deadlines, is crucial.

  • Send invoices promptly:

It is usually skipped or ignored. If you fail to get your invoice on time, your customer may not be able to pay in time. Automatizing the process of sending invoices is essential to ensure that invoices are delivered quickly and efficiently.

  • Customers have Easy Payment Options:

According to research, consumers will pay twice as quickly if they have easy and convenient payment options. Mobile payments have become an increasingly viable payment option thanks to their growing user base. Because of their ease of use platforms like Google Pay and PayPal can make it much easier for businesses to pay.

  • Pay close attention to payments received:

Review the receivables accounts daily to keep a tab on all transactions. Find out the reasons for the differences, and report them.

  • Plan for Past Dues:

A strategic approach to deal with customers who have outstanding payments that are past the due date. It is important to consider how late charges will be collected and what rate of interest and the best way to let customers know all details by either email or phone.

  • Conformity with Rules:

Your strategy for managing accounts receivables must be adhered to. It is impossible to alter the way you handle each case. Pre-planning your steps for each situation can make it easier and more customer-friendly.

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  • How to get rid of the customer:

Customers who are always late with their payments can cause more damage than good to your company. Calculate the risks of future nonpayment and noncompliance with your customers and take necessary steps. It is important to consider the risks of cash flow against the potential rewards for the customer. It is essential to end the relationship with customers at this point. It is possible to reduce the customer’s credit limit or demand the payment in full prior to when this isn’t possible.

A well-managed receivables department will directly boost the profits of your business by decreasing bad debt. The benefits include improved cash flow, availability of liquidity and greater opportunities for acquisition and investment. A good control of accounts receivables can enhance your business’s image on the market. The three main elements of managing accounts receivables are invoicing, monitoring and collections. These steps should be followed by every business to guarantee a stable future.


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