Recording a receivable is an important part in accrual accounting. It ensures the revenue is recorded in the same period as it is expected to be recognized, and it indicates that your company expects to collect cash for the product or service provided. However, there is a big difference between booking a receivable and booking cash. Without liquidity, you cannot cover employee wages, rent, purchase inventory or pay other debts. Upon booking an account receivable, incorporate the following items to manage your collections effectively and ensure you receive payment promptly.
It’s easy to manage accounts receivable with electronic tools. Accounting systems integrate modules for accounts receivable and sub-modules for specific clients. By querying a specific customer, you can determine exactly how much is outstanding, what the associated orders are and when payment is due. Utilize an automated aging schedule to identify what payments have not been received, who failed to pay on time and how old the invoices are. Plus, some systems allow you to establish automatic notifications upon the occurrence of certain conditions. For example, an email reminder can be sent to a customer if the client’s email is on file and the invoice is within five days of being due.
Maintain Customer Relationship
Customers are more likely to pay on time if you have created a strong relationship with them. Loyal customers don’t want credit terms revoked, and individuals happy with your service don’t want to be prevented from shopping at your location. These customers are likely to be seen frequently and place multiple orders in the same period. There are opportune moments to notify them of outstanding bills. Be understanding of difficult situations, and be willing to work with customers that are experiencing cash flow difficulties. You are more likely to receive at least partial payment, and you can strengthen a business relationship and may receive favorable feedback and publicity from the appreciative customer.
Offer Convenient Payment Methods
Managing cash flow starts when you make sure it is easy for your customers to pay your invoices. Offer convenient ways to pay. Customers may not carry sufficient cash on hand to cover the invoice. Accepting credit card payments, electronic funds transfers, wire transfers or other electronic payment systems provide your customers with plenty of ways to get money to you. These methods post cash faster than check payments and are less susceptible to internal control failures than cash payments.
Address Payment Terms
Make sure your customers know when invoices are due. Clarify abbreviated terms; not all customers may understand what “COS” means. Clearly communicate whether net 30 terms start from the invoice date or receipt of invoice date. Be consistent with the application of terms; customers may expect a former due date and not realize your terms have changed. Shorten your payment terms to speed up collections. Although this is unfavorable to customers, you receive more cash earlier if your invoices are due sooner.