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Ten
Steps to Better Receivables
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Our mission is to provide information and strategies
to business owners and managers for improvement
in the effectiveness of its business management
so that key objectives can be realized.
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Ted Hofmann
- Principal/Senior Consultant
John Morre - Principal/Senior Consultant
Linda Panichelli - Principal/Senior Tax
Consultant
CFO Plus, LLC
1450 Grant Avenue, Suite 102
Novato, CA 94945-3142 |
Home Office |
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415-898-7879 |
Toll
Free |
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866-CFO-PLUS
or 866-236-7587 |
Fax |
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415-456-9382 |
Email |
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thofmann@cfoplus.net
jmorre@cfoplus.net
lpanichelli@cfoplus.net
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Website |
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www.cfoplus.net
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We should’ve known a recession
was coming. All of a sudden, our best clients
who usually paid in 10 days were paying closer
to 30 – sometimes 45 days. In every industry,
cash flow plays a role, but in some such as
health care and auto dealerships there are many
areas where outstanding receivables can wreak
havoc.
Slow payment is one of the toughest issues small
businesses face. However, you don’t have to
take it lying down. There are ways to better
manage payments. Follow these guidelines to
securing prompt payments month after month.
1. Revise terms. With the recession,
many companies changed terms from 30 days to
10 or 20 days. Some even made invoices payable
on receipt knowing that customers would pay
in 30 days.
2. Extend credit only when necessary.
Credit is a privilege – not a right. An increasing
number of companies face more stringent guidelines
related to obtaining credit terms. Many companies
routinely work with companies that do not extend
credit or work on a cash-only basis. Depending
on your customer profile, this may work to help
you increase cash flow.
3. Check references before extending
credit. From office supplies to printers,
more and more companies require businesses asking
for credit to complete credit applications and
provide references. Join them to ensure your
customers are credit-worthy.
4. Ask customers to sign a credit agreement.
If, in the future, you need to collect money
owed, a signed credit agreement will put you
on solid ground. A credit agreement also ensures
that all credit details are fully disclosed.
5. Set a credit limit for each customer
account. Limiting customer credit accounts
allows you to manage risk and exposure. Even
large customers need limits. Vendors for Enron
discovered how just how quickly one large customer
can put a company out of business.
6. Establish purchasing processes.
Ensure all orders are made in writing and adhere
to both your purchasing policy and
your customer’s.
7. Send invoices immediately.
Some companies have become so good at this one
dimension of collecting that they put the invoice
on any goods delivered. The client receives
the good and the bill all at the same time.
There’s no room for float on receivables handled
this way.
8. Make invoices easy to read.
Invoices that don’t clearly denote the purchase
order number, or that fail to list the good
or service provided have a chance of ending
up in the “problem invoice stack,” which means
a delay in payment for you. Revamp invoices
if needed to ensure they are paid without delay.
9. Keep collections tidy. Establish
a process, keep records of customer contact,
and follow through on the collections process
– even if it means hiring a collections specialist.
You’ll earn the reputation of being a fair yet
firm company. If an invoice is partly disputed,
ask for immediate payment of the undisputed
part, then resolve the dispute separately.
10. Resolve problems early.
If a company regularly pays promptly, and has
started to pay more slowly, investigate to see
what has changed. It may be a precursor to problems
ahead.
As simple and straightforward as these steps
are, they can help you increase cash flow and
avoid problems with receivables. If your business
has many divisions or areas where cash flow
can be an issue, give us a call so we can help
you collect more even faster than before.
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