Accounts Receivable: Cash Flow Acceleration
Efficiently managing accounts receivable can change a company from treading water to
swimming in calm seas of financial security. Though it can seem daunting, the best
possible approach to attacking your accounts receivable is to segment the opportunities.
Correctly managed and up-to-date accounts will positively affect cash flow in your
organization. Following the benchmarks below can ensure cash flow acceleration.
PREVENTING
The first step to positive cash flow is prevention. Every new account should be examined
and prequalified. It is not too late for this step and a little time up front will save much
financial difficulty down the road. Verifying references is the first step in prevention. It is
very important to have a credit approval process in place first and then adhering to this
process. Check if they have good credit references; if this is iffy require a personal
guarantee.
Credit and personal guarantees will qualify the account before you even get started and
help to ascertain if the particular account should be set up on a cash only or credit basis.
Prevention on the front end will do much for a smooth continued financial and payment
relationship with your customers.
EVALUATING AND SEGMENTING
Next, it is important to evaluate as objectively as possible your accounts receivable status.
Traditional outdated benchmarks utilize the 30-60-90 percent past due process. Attacking through
30-60-90 can be too large of an elephant to swallow. We recommend segmenting by the reason
for delayed payment. There could be a variety of reasons for a late payment and it is important to
evaluate the source of the late payment to address the customer correctly. A few of these
reasons for delayed payment may include skipped invoices, short paid invoices, customer
disputes and outstanding credits.
Performance Matters recommends segmenting these due to the different solutions required to
resolve these issues. A skipped invoice, for example, should require little more than any office
employee resending an invoice to the Accounts Payable clerk, while a short paid invoice often
requires the involvement of a service team member to resolve a larger and potentially more
sensitive issue. Matching the best person, skill set and solution to each identified issue will
provide far more impressive returns than applying the same old 30-60-90 approaches to every
delinquent client.
Once the issues have been identified be sure to assign a timeline and who is responsible for each
overdue account. This will institute accountably across the organization.
COMMUNICATING
Accounts receivable is really about effective internal and external communication. Proper open
communication channels will alleviate many issues and problems before they grow into a looming
red number on your balance sheets.
Internally:
• Accounts Receivable Meetings - Assign frequency of internal communication; how often
meetings should be held to give progress updates.
• Designate a meeting leader and a scribe to collect and record individual commitments at
every meeting. Distributing a recap is essential in preparing your team for successful
delinquent account follow-up and closure.
Externally:
• Collection calls must be made to the customer to secure a payment commitment.
• Additional communication may be required when customers break their commitments.
I.e., a service interruption notification.
• Finally, we recommend taking the opportunity to occasionally communicate a thank you
to those customers that remain timely with their accounts payable.
MEASURING
Measurement is the only way to ensure the success or failure of an implemented procedure. After
clearly and objectively analyzing your accounts receivables and the execution of your collection
process you should be able to clearly see which accounts rebound to the positive column and
which stay in the red. Once most clients see that you are serious about adhering to a payment
schedule they will pay accordingly and not be negligent.
In summary, a smoothly defined accounts receivable process breeds success for customers,
employees and your company. Being able to objectively evaluate accounts will lead to a bright
financial future for your company.
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