How to More Effectively Convert Your Accounts Receivable Into Cash
When an unpaid debt sits on your company's accounts receivables, it cuts down on the amount of cash flow to which you otherwise might have access. Your accounts receivable sometimes may represent a relatively large amount of money owed. You may take steps to avoid such a situation. Carefully managing the process through which you extend credit and closely monitoring the accounts of credit customers will make your business more efficient and ensure more timely receipt of payments for merchandise sold or services rendered.
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Screen credit applicants thoroughly. Many companies pay insufficient attention to the process of examining a potential credit customer's creditworthiness. During this phase of the process, carefully evaluate the customer's credit application to ensure that he can---and likely will---make timely payments. If you spend a little extra time on the front end, you might reduce the accumulation of collections problems on the back end.
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Improve your billing system. If a customer does not pay for the entire purchase upfront, ensure that she receives routine, periodic, polite reminders of the outstanding balance. While you do not want to annoy her with constant bills, you do want to make sure that she remembers the account.
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Change accounts that take a long time to pay into "Cash on Delivery" or COD accounts. Many businesses rarely if ever change their standards. They allow the same problem customers to charge purchases. After a customer's first failure to pay in a timely manner, establish an alternative payment arrangement.
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Offer consumer finance solutions. Many credit card companies offer in-store credit accounts that may be used only with the business through which the account is opened. This will involve some cost in transaction fees, but it will facilitate immediate payment and still enable your customer to spread out the payments.
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