A frequently overlooked part of managing cash flow is managing payables and receivables. A part of the essential cash management reporting a business owner receives should be an accurate listing of accounts payable and accounts receivable. These should be aged or there should be an obvious way to view the time elements of each account.
Accounts payable should be reviewed for authority and accuracy. If cash is available for early payment, discounts should be utilized. If the terms of the invoice do not provide for discounts, many times discounts may still be available and negotiated for early payment. Otherwise, a determination of time of payment should be noted and executed appropriately.
Accounts receivable should reflect billings that state the terms of payment. If no discounts are offered for early payment, then the invoicing should state that accounts are “immediately due and payable.” Contact those who owe you money when the payment is due. The first contact can be to insure that the invoice was received and that there are no questions. The next contact should be to determine when payment will be received. Any past due receivable should be the subject of a telephone contact each week until it is paid. Sometimes the most important message to convey is that you are keeping track of the status.
Ideally, the following policies should be in place:
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Classifying customers (clients) by behavior and risk
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Documentation of rules for collection processes
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Using one contact to work each overdue receivable
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Accurate reports of accounts receivable and payable reviewed by executives
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Linking employee incentives to accounts receivable status
Improving the management of accounts receivable and payable can enhance the cash position of most companies.
