Organizations or individual entrepreneurs with a non-cash payment system are often perplexed: “What is it: monthly receivables are growing, growing like a snowball?” Someone will say that this is good - the products (services) are in demand, and with the calculation you can wait a while. But do not flatter yourself - basically such an increase is a signal that the company will suffer losses in the near future. Have you ever thought that some regular debtors use you as a bank? Those funds that are not paid to you on time are free money for your customers. They direct them to other needs, they say, you can wait with payments (nobody requires it). And what do credit organizations do in this case? Naturally, they are fined for late payment or accrued interest. So the time has come to understand what is accounts receivable and how to reduce it, taking it under strict control!
Tips to help reduce receivables
In principle, the entire “accounts receivable” is divided into the following types: normal (the period between shipment (provision of services) and the term for settlement under the contract); overdue (the amount was not received on the date agreed by the contract) and hopeless (when there is no way to return the funds). And in order not to be in the second and third situations, you must adhere to the following tips. Permanent work with receivables has several stages.
- Track debtors weekly using software. Fortunately, computer programs have been developed that generate reports in seconds. This allows you to systematically monitor the financial situation.
- The sooner you bill, the sooner the money will arrive. In addition, it is advisable for the client to remind about the timing of payments. For example, attach a respectful letter about this to the invoice, or you can add this information on the invoice sheet below, highlighting it in bold. The idea of paying on time should be firmly entrenched in the memory of the debtor.
- Early payment discounts are a great way to encourage customers to pay as soon as possible. This means that you can get a discount of, say, 2% if payment is made within 10 days, while the contract indicates a period of 30 days from the date of invoicing (see below for advice No. 2).
- Constant work with debtors significantly increases the chances of getting money. Letters must be accompanied by telephone calls. Of course, initially reminders need not be seen as harassment. Messages should always be polite, but firm, ask buyers about when they can pay the debt.
- Another effective way is to provide for such penalties as fines, fines, interest. For an example, it is enough to look at utility bills or a mobile phone to understand what are receivables in the housing and communal services and communications, as well as to see what the conditions of charging and collection are set there. These companies are extremely effective at collecting non-payments.
- Transfer the debt to a collection agency if, despite all efforts, the debtor is not paying you. This is not an ideal option, but collection firms know what accounts receivable are, how to deal with them, and are very persistent in “knocking out” funds.
Why do you need an audit of debts?
With proper management, continuous debt monitoring is effective. Most customers tend to pay on time. In addition, it is advisable to check the status of accounts by conducting an audit of receivables and payables. According to its results, weaknesses and strengths of the company’s activities are identified, and appropriate measures are proposed to improve its financial condition. The main steps of the audit are as follows:
- The study of constituent documents, accounting policies of the organization.
- Analysis of primary documentation, linking financial documentation with the terms of contracts and prices in force at that time.
- Evaluation of settlement documents, comparison with reporting forms.
- Determining the reliability of data in the balance sheet and its applications.
- Development of recommendations.
In principle, the area of work with receivables and payables requires only a streamlined system of organization and control. Set your own rules and then follow them.