To start with, accounts receivables are the outstanding invoices or money that your customers still need to pay you. It's like money that's waiting to come in. And as a business owner, you know how crucial it is to get paid on time to keep your cash flow running smoothly.
You know, there's this saying, "if your customer owes you a hundred thousand, they have a problem, but if they owe you a million then it’s your problem". The first part means it's normal for a customer to owe you a small amount occasionally because they might be facing some financial issues. But the second part is where it gets tricky. If you have a lot of customers who owe you a huge amount, it's a sign that you might not be managing your accounts receivables efficiently.
Accounts receivables are a significant source of cash inflow for your business. If you don't handle them well, it can seriously impact your business in various ways and hinder its growth.
Getting customers to pay their bills on time can be a real challenge. But don't worry, we have got 6 helpful tips for you to manage accounts receivables like a pro and get rid of those unpaid bills.
Tip-1 Keep clean track of bills
One of the key essentials for managing accounts receivables efficiently is to keep a clean track of bills. A bill-by-bill tracking that involves tracking of each sales invoice and mapping with the subsequent receipts received from the customer will be useful. This way, you can easily keep track of your accounts receivables, maintain healthier customer relationships, and resolve any disputes easily.
Tip-2 Keep a close eye on long-pending bills
The longer an invoice remains unpaid, the longer your cash stays blocked. If not tracked regularly, it may turn into bad debt. This requires you to regularly monitor the ageing of bills and identify those that have been pending for a long time
Today, most businesses prepare an ageing analysis of accounts receivables to identify the bills which are pending for a long-time and accordingly schedule their collection.
Illustration of ageing analysis of accounts receivable
If you look at the above illustration, the ageing analysis of accounts receivables clearly indicates bills that are older than 90 days. This gives you instant insights about the bills which you need to immediately follow up to get them paid.
Tip-3 Pay attention to your customer's payment performance
This is all about how long it takes your customers, on average, to pay their bills. If you have a high debtor collection day, you are getting paid late. A lesser number of debtor collection days implies that bills are paid faster by your customer and therefore more cash is made available for use. So, keep an eye on this and identify customers who consistently delay payments.
Tip-4 Set up a collection schedule and follow up regularly
Preparing a collection schedule with a list of overdue customers can be really helpful. Ageing analysis of accounts receivables will be handy to know the overdue bills. You can send out reminder letters and follow up with them through emails. This will increase the chances of getting paid faster.
Tip-5 Implement internal credit control techniques
You can define a maximum credit limit for each customer based on their credibility and repayment capacity. This will help you avoid overselling to customers beyond their credit limit. Also, set up alerts for overdue bills during invoicing to stay on top of things
Tip-6 Use accounting software to manage accounts receivables
This one's a game-changer! Accounting software can make your life so much easier. It helps you track bills, ensures faster payments, improves customer relationships, and boosts cash flow. Plus, it saves you time and effort from manual work. Using accounting software makes it easy to track the pending invoices, get real-time status of accounts receivables and prepare ageing of bills.
So there you have it! These tips will help you manage your accounts receivables efficiently, leading to a healthier cash flow for your business. And if you're interested in learning more ways to improve your cash flow, check out our next article on '6 Tips to Manage Cash Flow'.
