Controlling Your Cash Flow

Accounts Receivable

Controlling Your Cash Flow

Accounts receivable (A/R) is the amount of uncollected revenue you expect your company to receive from your customers. It represents the largest and most accessible source of non-financing cash available to most companies.

How efficiently you manage A/R will go a long way to determining your company’s profitability. Unfortunately, most managers do not attempt to manage A/R with more than a passing thought until there is a problem with cash or a recorded balance is questioned. By that time, the possibility of recovering full payment is remote.

Mismanagement of accounts receivable has been the death of many otherwise viable companies. Fallout from an unforeseen A/R problem can wipe out what you thought were going to be profits and future cash flow, leaving your company extremely vulnerable.

Here are seven tips to help you manage AR effectively:

Bill promptly and as often as possible. The quicker you bill somebody the quicker you get paid. Billing promptly also eliminates a time lapse between the customer getting the value of your product or service and paying for it. If you always bill late or the timing is erratic, your customers will most likely place less importance on paying you. Project an image of consistency and urgency and people will respond.


Collect all payments when due. If your business requires that certain payments be made as deposits or at time of service, be certain to collect those payments. Printing companies, for instance, often require a large deposit be made for orders of preprinted materials. Medical practices need to collect co-payments or deductibles from patients when the services are performed. Other companies may require down payments to facilitate a financing arrangement. If you don’t collect these types of payments when due, the chances of you collecting them later are significantly reduced.


Eliminate all barriers to payment at the outset. Make certain you have the appropriate agreement for the terms of the sale BEFORE you provide the service or deliver the product.


Provide all documentation necessary to facilitate payment at the beginning of the process. Make sure the invoices you send out contain all the supporting documentation your customer needs to pay you.


Aggressively follow up on overdue invoices. Often, all that is needed is to call to ask for an update on the timing of the payment. Other times, you will need to take a firm stand and demand the payment be made. You have to be willing to be tough when necessary. Otherwise, people will take advantage of you.


DO NOT work only the old accounts. If you focus only on older accounts, you ensure that you will always have older accounts. Work the more current accounts in order to collect them before they become “old.”


Stay on top of the situation. The longer you wait, the more unlikely it is that you will collect the full amount that has been invoiced.

Who would you pay first? A vendor who sends invoices on a regular schedule with full supporting documentation and diligently contacts you to determine the status of a payment, or a company that sends invoices from time to time with little explanation and no follow-up?

If you don’t already have one in place, now is the time to establish a sustained effort to manage your A/R. Your company’s profitability and future cash flow depend on it.

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