Many businesses suffer due to problems in the way they
handle their accounts receivables (AR). If you’ve got a cash flow issue, and
you can’t figure out why, there’s a good chance that your AR practices are to
blame. Fortunately, these problems are fixable with the right help, and getting
your AR processes in order has the power to save your business.
Of course, you can’t really take the steps to save your
business if you’re not aware that it’s in trouble, so be aware of and on the
lookout for these common signs of AR issues.
Sign #1: High DSOs
Days sales outstanding (DSO) is a measure of how many days
it takes between making a sale and receiving the payment for it. Obviously,
businesses with high numbers in the DSO department are businesses that extend a
lot of credit...maybe even too much.
Studies show that the longer a business waits to collect on
a payment, the higher the risk that it will never receive that payment.
Obviously if this happens a lot, your business could wind up in major trouble.
If you’re finding that your DSO measures are sky high, it’s time to get some
help before your business goes belly up!
Sign #2: You Don’t Have a Clearly Stated Credit Policy
Another sign of trouble is if you don’t have a credit policy
at all or if your policy isn’t clear and absolute. You need to have thorough
measures in place as to how you will “credit check” those who wish to receive
credit from you and as to what standards these customers must meet.
If you’re extending credit to everyone or being
wishy-washy about whom you extend credit to, you’re just asking for trouble. If
you must extend credit, do so only to deserving clients with a proven history
of on-time payments and caught-up accounts.
Sign #3: You’re Reliant on Invoice Factoring
Invoice factoring might sound like an easy way
to get more cash flow, but it’s really just a temporary (and dangerous!) quick
fix that doesn’t actually fix anything at all. The key to having better cash
flow is to better manage your accounts receivables, not to resort to “quick
fixes” that do more harm than good!
Sign #4: You Don’t Send Reminders Until Late
in the Game
One of the worst things you can do as a
business owner is to wait 90 days (or more!) before you send out payment
reminders. As mentioned, the longer you wait before attempting to collect, the
less likely it is you’ll ever see your money. You need to send a gentle
reminder the moment a payment is past due and then more reminders in 30 day
increments.
Are you experiencing these dreaded signs of AR failure in
your business? If so, don’t delay. Get your AR on track, or you could find your
business in serious trouble. #AccountsReceivables #Kinum
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