The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
Cash flow is essential to small business to pay bills, pay suppliers, pay employees and to pay yourself Ð the owner. Without it your business cannot thrive. So how does a business owner maintain a strong and solid cash flow? One answer is in well-managed accounts receivable. Accounts receivable is the money owed to your business for products and services you have provided. Some customers of yours may be true gems who always pay on time, and some seem to behave as if they think you are independently wealthy. It's challenging Ð one of the most challenging aspects of running a business, but here are a few straightforward tips on how to keep your accounts receivable Ð and your customer relationships in top shape. 1. Know your customer Before signing on a new customer, do a bit of research, talk to a credit rating agency to help determine their credit history. After all, customers who can pay you in full and on time are central to the success of your business. Work to build your customers for lifelong relationships. 2. Set parameters If your customers know at the outset what the terms of payment are, they are much more likely to follow them. Set customer expectations early on in your relationship Ð preferably before you invoice them for the first time. 3. Keep good records No business owner likes additional paperwork, but keeping track of who owes you money and for how long is critical financial planning for your company. The longer someone owes you money, the more attention you need to pay to that account. 4. Know your strengths Not everyone likes making the call to remind customers of accounts that are due, or overdue. If this is the case for you, or you just believe you don't do it very well, find someone who does and pay them to do it. Some owners use family members who are skilled in this field, some hire bookkeepers to do the work. Either way, if it isn't your strength, have someone else do it. 5. Know what your customer wants Some customers are with you for your superior product, some for your personal service, some for your flexibility. If you know exactly why a customer has chosen you, then you can deliver exactly what is most important to them. This helps to establish long and sustainable business relationships that can weather the storm of the occasional difficulty with invoices. 6. Take action If reminders, interest charges, and phone calls have not worked and if you have been clear from the beginning about what the expectations around payment are, you may want to consider the next step: hiring a collection agency. This is a difficult decision for any business owner, no one wants to alienate a customer and have them never return. Before you move to professional action, you have to be ready to give them up as a customer. It's the last resort Ð and the collection agency fee will mean you will be lucky to receive 50 per cent of what you are owed, but that may be substantial enough a sum for you to fight for. Small business owners should always review their accounts receivable. They should look at who owes them money because the longer it takes for their customer to pay them the less cash the small business owner has to pay their bills.
