As a small business owner, staying on top of your accounts receivable is important to maintain a healthy cash flow and keep your business growing. Accounts receivable refers to the money your customers owe you for products or services you have already delivered. Basically, when you have accounts receivable from a customer, you’ve extended credit to that customer.
It’s generally wise to establish a tight timeframe for all accounts receivable, with demands for payment in 30 days or so. In some cases, you may have reasons to extend the payment period for up to a few months. For example, you might do so with a large, trustworthy client who has a reliable payment history. Extending credit can be a way to build or acknowledge a long-term relationship with that client.
When you allow customers to delay payment, creating your accounts receivable, you run the risk of cash flow problems. You can offset some of this risk by specifying payment and credit terms clearly on your invoices, charging penalties for late payments, and offering discounts to clients who pay early. Automating your invoicing can also speed up payment, since it eliminates delays on your own side of the transaction.
Accounts receivables show up on your balance sheet as an asset. When you employ easy-to-use accounting software like QuickBooks Online, it’s easy to track your accounts receivable and make sure you’re adjusting your books properly. QuickBooks can also facilitate automated invoicing to make your clients readily aware of what they owe you.