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| ACCOUNTS RECEIVABLE
Unless your business is a cash business e.g. a coffee shop, the collection of money is always going to be an issue. By not collecting the money you are owed your exposure in difficult business times to bad debt is considerably higher than in “good times”. There are some simple things, if implemented, which will make the collection of money easier.
1. Ensuring your terms of trade are clearly identified with your customers this will have the effect of enabling you to be a little more aggressive had the terms of trade not been identified.
2. If possible and if you have to give credit, your terms of trade should be just 7 or 14 days from date of invoice (not date of statement). Remember the basic rule in business “Cash is King” if you have the money you will be able to negotiate discounts for prompt payment from your suppliers.
3. By ensuring all possible invoices are issued 2 working days before the end of the current month's trading, this simple routine should ensure the invoice goes into the customers Accounts Payable system quickly and in turn receives prompt settlement.
4. Having good systems which justify individual charges; in the building industry for example, you may choose to establish work variation forms which the client signs when a variation is requested/completed. This saves many arguments over whether the work was authorized or not at the time of the request.
5. If quotations have been given, stick with the quotation. If a variation is necessary, explain the variation long before you render the final account/invoice. You take away the customers reason to not pay your account/invoice
6. For those businesses who have large amounts of money owed to them, it is possible to have credit reference checks undertaken on all businesses. These checks should occur before you start trading with new customers.
7. There are a number of providers in the marketplace who will give you a credit check for a small cost (it’s cheaper than a bad debt!). If the credit reference check comes up with defaults on your customer or potential customer you have a warning sign your customer could be in financial trouble and you could be “buying” a bad debt.
The “YBM - Smart $ Software 4 SMEs” is a great tool which gives you an accurate current financial picture and works provides a projected position, not as most of the recognized software accounting packages do which provide historical accounting records.
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