It is one thing to entice consumers and make a sale. It is something else entirely to collect the money owed to your small business. Accounts receivable is what is owed to your business in contrast to accounts payable, which are the bills you need to pay. Without an accounts receivable plan that keeps your income steadily coming in, your accounts payable will add up quick.
Accounts receivable is the most critical aspect of managing your business. No matter how wonderful your product or service is, how great your online presence may be and how large your client base, none of this will amount to anything if your bills are not being paid on time. The best way of course to avoid any difficulty is by not offering credit of any kind. But there are some small businesses, especially in the service industry, where customers want to see results first and credit cannot be avoided.
If you are providing a service, and having trouble collecting on your bills follow these tips to get your income coming in at a steady rate:
Accounts Receivable Tips
- Use professional invoices that are easy to understand. An invoice for a product or service rendered should be as specific as possible. Let’s say for example you are a carpet cleaning company who works in other businesses after hours. The invoice should specify the date, the time you entered and exited, number of technicians and the service performed. It should then have the price, the tax and total amount due. It is also a good idea to include an additional amount if paid past the due date. Make sure that the total amount due and due date are clearly defined on the invoice.
- If possible include the invoice with the product or service rather than mailing it at a later date. If you have to send them out, do so immediately following the sale or service. Either way, always include a self addressed envelope for them to send you your payment.
- It’s not a bad idea to offer an incentive for paying on time such as a discount on the next purchase. Not only will this keep your income coming in on time, it encourages repeat business.
- Don’t be shy about getting on the phone and following up if the payment is late. For some people it may have been just an oversight, but if you are finding that you are wasting your valuable time consistently on the same customers, it might be time to reconsider extending them any form of credit.
- Only use collections agencies as a last resort. You will build more business by trying to work with people personally on making the payment than if you involve a third party. Only resort to this extreme if it becomes obvious that the client has no intention of paying their bill with you.
There are computer programs available that work extremely well with helping you create and track invoices. Not only does this help in keeping up with your accounts receivable, it can work towards reminding me of when a customer is ready for another order or service. Since most are designed as complete accounting programs that also track your accounts payable, all of your book keeping will be done in one place.
At the end of the day, your goal is to make a profit with your small business. In order to achieve this successfully and consistently, you have to have a sure fire plan for collecting payments.