Business owners understand how intertwined receivables and cash flow are. If customer payments are coming in at a slow trickle, it can place an immense strain on cash flow. Fortunately, there are ways to manage receivables and ensure steady payments without having to resort to phone calls and collection agencies.
Require a down payment
This has become a standard practice, so there is worry about being too demanding of customers by making this a requirement. Getting a down payment can cover the initial cost of filling an order without having to dig into the company’s own cash reserves. The end result is that customers with money already in the transaction are more likely to pay off the remaining balance in a timely manner. This is a great way to alleviate the strain on cash flow while being able to manage receivables, rather than waiting on payments from customers at the end of the aging window on the invoice.
Penalties for late payments
This method must be announced before the transaction is finalized, as well as printed on the physical invoice to protect your business from any backlash. Adding extra fees to late payments on customer orders is a great way to ensure the balance is paid off in its entirety, and in a timely manner. No one want to pay more than they have to, and no one wants impacted credit ratings. Late fees are a great way to manage receivables because it reduces the amount of time and energy put into tracking outstanding balances across multiple customer accounts.
Using AR financing to manage receivables
One of the fastest ways to manage receivables and ensure a steady cash flow is to use AR financing. AR (accounts receivable) financing lets businesses sell their unpaid customer invoices in exchange for immediate working capital (minus a small administrative fee). Most AR financing agreements can be arranged in under 48 hours, and invoices are converted to cash within 24 hours after that. AR financing streamlines the accounting process, by giving businesses one source of revenue, and responsibility of getting payment from customers falls to the AR financing company once the invoice is submitted.
AR financing is one of the best proven methods for managing receivables and getting businesses the revenue they are owed to ensure a healthy and steady cash flow. Some businesses use AR financing as a short-term solution, while many others build long-term relationships with AR financing companies to keep receivables under control and streamline accounting as the business grows.