How to Write a Corporate Accounts Receivable Policy
Business bookkeeping systems may seem complex but are important to have, particularly when it comes to accounts receivable. It is easy for the average business that sells items on credit to tie up a large amount of capital in receivables, and not have the accounts pay as quickly as possible. Unpaid accounts receivable tie up capital that can be used for other purposes, such as paying your suppliers or employees, or paying your own salary. Writing a solid accounts receivable policy is one of the most important things that you can do for your business.
Other People Are Reading
Instructions
-
-
1
Examine the accounts receivable aging for your business, and determine what type of payment cycle is typical. Review your invoices that must be paid each month to determine when your invoices should be due to allow you to pay your bills on time. Consider a staggered billing approach to allow your business to spread out cash flow throughout the month.
-
2
Set your collection terms. Most businesses opt for net 30 terms as the longest payment terms that they allow. Net 30 means that the total bill is due within 30 days. If a business wants to encourage faster payments, it may offer 2/10 billing or something similar, which means that the payor can take a 2 percent discount on the invoice if the bill is paid within 10 days. If your industry has slow payers, you may want to use this in order to encourage quicker payment. Make sure that the discount or term is figured into your overall pricing structure, to allow for adequate profit when a customer takes advantage of the discount.
-
-
3
Maintain a signed credit application and account agreement for each of your credit customers. The credit application should have the complete name and address of the customer, plus all contact information. The application should also have customer's valid Social Security number or taxpayer identification number in case it is necessary to pursue collections on the account. A collector will list the account with the credit bureaus using this information.
-
4
Decide what will happen when a customer becomes past due. Establish a formal collections policy, outlining the different collection processes that you will use depending on how far the account is past due. Start with letters, and progress to phone calls or personal visits. Determine how far you will allow an account to go past due before you enlist a collection agency or file a small claim lawsuit. Set credit limits for your customers, based on their past payment history and purchasing habits. Have a review process to adjust the limits as needed.
-
5
Communicate your policies to your customers in clear, concise terms. Making sure that the customer understands the credit policies from the beginning is the best approach to avoid confusion later, particularly if the account goes past due. Once your policies are set and written, as well as communicated, enforce them without exception.
-
1
Tips & Warnings
Make sure that you keep a record of accounts receivable aging, and watch for trends in payments as economic conditions change. If accounts are taking longer to pay, you may need to be proactive and reduce credit limits or start collections activity sooner.
Have your official contracts and accounts receivable policy reviewed by a lawyer. He may be able to offer suggestions to make it easier to legally collect accounts if necessary. Unless your business model involves lending money to retail customers, confine your business lending to business accounts.
