A smooth running accounts receivable department that ensures funds are flowing into your bank account on time, each month, form the lifeblood of a growing business. Your ability to expand, provide better service, hire new talent, invest in new equipment and improve your office or store fit-out all hinge on incoming funds.
Sadly however, many businesses stagnate and underperform because they fall into some common traps that prevent them from collecting all of the money that is owing to them. The good news is, these traps can be avoided if you are aware of them and institute adequate procedures to overcome them.
Common accounts receivable traps and how to avoid them
- Late and inconsistent follow ups
Following up on overdue accounts as early as possible is key to recovering them. Your prospects of recovering a debt dwindle the longer it is overdue. Consistency is also required to maintain the right amount of pressure on the client. If you don’t do this, many will happily sit on your money for as long as you allow them.
Avoid this trap by: instituting protocols to follow up on overdue invoices with a firm reminder at regular intervals and escalate when necessary.
- Failing to monitor payment plans
Negotiated payment extensions and payment plans can spiral out of control if proper records are not taken and compliance is not monitored. Clients may even use this as a tool to defer or avoid payment if they discern that you are not diligently keeping a track of the arrangements.
Avoid this trap by: confirming all alternative payment arrangements in writing and maintaining accurate records so that if the debtor falls behind you can easily determine how much is owing.
- Being too lenient with debtors
If you are perceived to be too lenient or negotiable on your credit terms, clients may assume that you don’t mind waiting for your money. They will continue milking you for credit extensions so they can use available funds to pay other creditors who rigidly enforce their payment terms.
Avoid this trap by: enforcing your own terms and conditions strictly and only giving extensions in exceptional cases.
- Not seizing opportunities to outsource
Like any aspect of running a business, operating your accounts receivable efficiently comes at a cost. Businesses must calculate how much time and resources are spent chasing payments, liaising with debtors, monitoring payments, doing background checks on debtors and initiating legal action and consider whether they would be better off outsourcing these tasks to a professional accounts receivable and debt collection agent.
Avoid this trap by: weighing up the cost of operating an in-house accounts receivable department efficiently, against the potential benefits of applying that time to income earning activities. Consider whether outsourcing to a professional debt collector and recovery agent would alleviate stress, expense and inefficiency in your business.
Where can I get help with my accounts receivable?
We have a number of brilliant solutions to relieve you of the burden of chasing your own accounts and get your accounts receivable humming. Talk to us now about how we can improve your business.