Don’t Let Accounts Receivables Leave You in the Red

One of the challenges for any business is dealing with outstanding accounts. Managing accounts receivable while providing services for customers can be a tricky task, especially for organizations such as hospitals and clinics.

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Any business can be more successful if it learns how to deal with this aspect of earning revenue.

Know Your Limits

Even when a business is profitable, it can still get in trouble if it does not manage accounts receivable. Money earned is not the same as money received when customers still owe you money. You can’t pay your own bills on the promise that you will be paid “someday.”

Know how much you credit you can afford to extend customers while still meeting your obligations. Cash flow is as important as revenue to determine how effectively a business can operate.

Keep AR Shorter than AP

Make sure your turn-around time for payments on account are shorter than the time you have with accounts payable.

For example, if your company’s creditors give you 45 to 60 days to make payment, have your customers pay you in 30 days. This helps to ensure that you have the money to pay your accounts when they come due.

Be More Aggressive with Late Payments

What about those customers who are always late with their payments or never pay at all? Many times businesses get in more trouble with the customers who pay late rather than those who just don’t pay.

Why? Because they continue to extend them credit while not receiving a payment when needed. For instance, suppose you have a long-term customer who charges $1000 per month with the agreement to pay in 30 days. Time goes by and you don’t hear anything. After a friendly reminder, your customer sends in $500, but it is at 45 days instead of 30. You send another reminder at 60 days and he pays the other $500.

That payment is made and he is caught up, right? Now, he owes another $1000 and is late again. In reality, you will always be getting your money a month later than you expect.

This often happens with small businesses that are afraid to charge late fees or interest because they don’t want to lose their customers. They rationalize that the customers always pay even though it is late.

However, they are still obligated to pay their own bills even without the payments from customers.

Not All Customers Will Leave

The truth is that most customers will still continue to do business with you even if you charge them for being late. The fee is just one way of paying for the additional time.

As the article, ā€œHow to Decrease Hospital Accounts Receivables Daysā€ says, managing your cash flow ensures that you can address any issues in a timely manner.

Many businesses do not fail because of being unprofitable; they fail because they do not have positive cash flow. Managing your accounts receivable efficiently ensures that your business succeeds while providing the products or services that your customers need.

About the Author: Joyce Morse is an author who writes on a variety of topics, including business and finances.