6 Ways to Improve Cash Flow by Managing Receivables
Need to forecast and improve your cash flow? All businesses should carefully monitor their cash position.
Healthy cash reserves enable investment in growth, allow distributions to owners or – for some businesses – can be a matter of survival. In any case, cash management is critical.
One way to improve the cash position is to carefully manage Accounts Receivable (or collections). Here are some Best Practices which can positively impact the cash position.
1. Set weekly cash collection targets
Accounts Receivable (AR) management is an important business process and clear targets should be set. Short-term targets help you chip away at the larger AR balance. These targets can be increased or decreased depending on your cash requirements and the total AR balance at any time.
2. Improve the invoicing process
It’s difficult to maintain a low AR balance when invoices are sent late or contain errors. Also, an overdue invoice should immediately trigger follow-up actions, signalling to your customer that you are serious about collecting your cash on time.
3. Make getting paid easy!
Give multiple payment options and make payment as convenient as possible so there can be no excuses. Online payment options are increasingly popular in most industries.
4. Offer discounts for quick payments
This lets the customer know that you value getting your cash on time and offers an incentive for them to pay you fast.
5. Stay in touch with customers (especially regarding the state of their business)
Business conditions are always changing. Hopefully, things improve… but some customers will encounter difficulties which compromise their ability to pay you. Early warnings help you take appropriate action, but this requires you to stay in touch with customers.
6. Prioritise customers with large AR balances
Your Accounts Receivable process should prioritise customers where returns will be greatest. That doesn’t mean you neglect the others… but recovering a large debt will have the biggest impact on cash AND increase team morale!
Success in Accounts Receivable management comes from building systems and implementing them consistently. That’s better than waiting for the AR balance to spiral out of control… and then trying to fix things. A few small steps can make a big difference to cash… so why not get started?
Need to forecast and improve your cash flow?
Do you never have enough money for wages or BAS payments? Are you always wondering where your profits went? It’s no secret that failure rates among Australian small business is high and about half of corporate insolvencies are the result of inadequate cash flow or high cash use and trading losses. The professionals at Notch Above Bookkeeping can assist with cash flow forecasting for your business. We will help you understand the cash flow requirements of your business. Contact our Xero Certified Bookkeepers Australia-wide on 1300 015 130.