Cash flow is crucial when managing a growing company. Those with optimal cash flow have mastered the balance between payments going out (payables) and payments coming in (receivables). They have tight processes that allow them to anticipate most cash flow threats before they happen.
Managing your receivables is a huge part of dealing with those threats. If you have too much money tied up in receivables, you don’t have funds available to keep up with your payables, especially if those receivables are delayed. Luckily, staying on top of your receivables is a reasonable goal to accomplish.
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To help, here’s a checklist for managing your receivables so they don’t put pressure on your cash flow:
1. Make the process a policy
The first step in creating any process is to define it. After you come to terms with a customer, what are the next steps for getting paid? Do you take payment in advance or after your side of the contract is executed? Lay out the process and develop it into a company policy. Having this policy in place will allow you to better predict your cash flow situation.
2. Communicate payment policy to your customers
With the policy in place, you should make it readily available to your customers, ideally before you start doing business with them. Clearly communicate the benefits of playing early (like by offering a discount) and the consequences of paying late, as well as any additional terms, such as up-front deposits. As a small business owner, it’s sometimes hard to be a “stickler” with your customers when it comes to late payment fees, so providing positive reinforcement for paying on time is a lot easier than negative reinforcement for being late.
3. Make it easier to know your cash flow
Keep your outstanding receivables number at your fingertips at all times. If you have to spend hours in Excel to get this number (and only for a single snapshot in time), it’s going to be difficult to have an accurate picture. So, if you haven’t already, research some tools that can automate this process for you. One of the benefits of switching to paperless electronic payments is the systems that can track your payments for you (see number 5). No paper means automated reporting, rather than stacks of customer files and manual spreadsheet work. If you’re always in-the-know on how much money is tied up in receivables, you can act more precisely in other areas of your business.
4. Keep a collection agency in your back pocket
While it’s not ideal, customers tend to respond more quickly when third-party collection agencies are involved. It can be a stressor on the relationship with the customer, but sometimes it’s your only choice. Your receivables policy should determine when a third-party collection agency gets involved.
5. Use the tools available to you
In addition to third party collectors, there are a wide variety of tools and partners available specifically to help with your receivables. Software that helps you manage your customers, invoice electronically, and accept payments online can go a long way in speeding up your receivables process and help you stay organized. Solutions such as PaySimple also provide custom reporting and real-time dashboards so you can always have your finger on the pulse.
Receivables are just one piece of the cash flow pie, but one that can be improved with a little planning and execution. By following these steps and maintaining a checklist for managing your receivables, you are sure to have a better grasp on your cash flow situation. If you’re not following similar steps today, pick a few to start with and see for yourself how beneficial they can be for your business.
