Tweet

Don't Be Afraid of Accounts Receivable

Written by: Ty Hardison

Article Overview: Many small and midsize businesses (SMB) we consult with are afraid of implementing policies and procedures to better manage their accounts receivable (A/R) because they are scared of losing customers. Is this fear preventing you from achieving AR best practices?

Don't Be Afraid of Accounts Receivable

Many small and midsize businesses (SMB) we consult with are afraid of implementing policies and procedures to better manage their accounts receivable (A/R) because they are scared of losing customers. The thought is that if they enforce the credit terms established during contract negotiations that their buyers will simply find someone else to do the job.

Are you scared of your customers? Is this fear preventing you from achieving AR best practices? Don't be afraid of making sure your customers pay you on time. The strength of your A/R processes sets the tone of your ongoing working relationship. If you allow buyers to explore how far they can push their payables and get away with it then what are you teaching your customers? Are you broadcasting that you are not good at managing and collecting your receivables? What else might you not be good at?

Successful SMB understand the impact of making good impressions. They create a professional web presence; develop impressive literature; record phone tree navigations to different departments and more, all in an effort to emulate the buyers' experience of working with their larger industry counterparts. It's important for company management to understand that how they operate trade credit is also a reflection on their business. Don't let a fear of enforcing your credit terms permeate through your entire organization. Best practice trade credit administration policies that are clearly communicated to your staff and to your buyers will strengthen your reputation for running a tight ship.

Extending trade credit is essential to attracting and retaining customers but it comes with the responsibility of managing the costs of credit. For example, selling a 60 day term provides a "sales" benefit on the front-end to win business and separate you from competitors. Selling a 30 day term yet allowing your buyers to slip to 60 days is not a smart use of credit. If you originally negotiated a 30 day term only to find that your buyer is slow paying in as much as 60 days - but otherwise is a good customer - consider the carrot of bringing them current, then extending them 60 day terms, with the understanding that you expect them to honor your terms. This creates a better long term customer relationship verses doing nothing at all because at least you are getting paid. And keeping your customers within the credit terms you provide helps your organization better manage your cash flow.

It is the responsibility of the seller to manage their credit terms and failing to do so creates uncertainty for both the seller (When will payment arrive? Is my buyer doing okay? What's my risk? How should I collect?) and the buyer (Will they deliver another order? Can I delay another week while I pay another vendor first?). Unchecked, this lack of structure, damages the fabric of the relationship.

It's best to start your buyer relationship under a structured procedure for trade credit administration rather than trying to re-train them later. If you are moving your organization from lax trade credit policies to structured administration, this requires thoughtful client communication. Are you the best at what you do or the best financing source of free money? Maybe it's both, but knowing how your clients perceive you is important as you communicate your improvements to your trade credit administration. Position this communication as a positive result of your company's growth.

While flexibility in credit decisions should always be maintained and based on the best available information at the time, having structured policies and resources in place to help make these decisions is key. Are you ready to implement AR best practices?

Related Articles
  The Unknown Secret In Canadian Accounts Receivable Finance - C I D Business Factoring And Financing in Canada
  Supersize Your Canadian Business Accounts Receivable Finance Success via Confidential Invoice Discounting Factoring
  What Does Accounts Receivable Financing Mean? How does it work in Canada?
  Recourse and Non-Recourse Nurse Staffing Accounts Receivable Factoring: What’s the Difference?
  We’re Sharing the biggest Secret in business funding today and why factoring of accounts receivables isn’t what you thought!

Article Tags: accounts receivable, administration policies, best practices, company management, contract negotiations, credit administration, entire organization, impressions, industry counterparts, midsize businesses, navigations, payables, policies and procedures, professional web presence, receivables, reflection, reputation, retaining customers, sales benefit, tight ship



Related Forum Posts
In-depth understanding of Cash-flow - Accounts Payable and Receivable can get a lot of businesses in trouble. You really do need to be careful to ensure you don't come unstuck. Having a credit card or overdraft facility can help in these circumstances though.
Top Four Young Entrepreneur Mistakes - According to Youngmoney.com, these are the four most common mistakes made by young entrepreneurs: 1) Not enough networking 2) Not prepared for the work load 3) Lack of confidence 4) Afraid to ask family and friends for help I would add to this list not getting started in the first place. But, if these are your problems, I would suggest checking out Keith Ferrazzi's Never Eat Alone, and Guy Kawasaki's The Art of the Start, both of which provide great tactics for getting to that next level.
Re: How to Promote Your Blog – The Definitive Guide to Promoting - Great Post! Dont forget to put your blog in Anchor Text For SEO purposes for the keywords you want when getting backlinks (for example with article marketing)...Very important. You can conquer quite a few small Niches and get your site on the number 1 spot in Google!
Re: Due Diligence, Market Research.. Ahead of the curve. - Congrats! A few months ago I wrote extensively on market research. Check in the Inventors corner for the posts. Let me know if I can help further! Dont spend a dime on a protype or advertising until you do some research! Jude
Re: Who hates cold calling? - I saw this and had to chime in. I HATE COLD CALLS. lol its terrible and a wast of my time. Something i have done is gotten online and found all the networking event happening in my area for the next 2 months and i try and go to about 3 a week. Even just for an hour. Dont bring any business cards. Just meet new people ask them alot about what they do, not too much about what i do and follow up the next day or 2. Has worked well


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Sales Training – Top Salespeople Are Not Dunces

Track Your Time for Increased Productivity

Environment and productivity at the office

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.