A good job is all about providing value to your company, your customers and the people who work for you. Therefore, understanding the performance of your company’s accounts receivable system is vital. Here are few ways you can optimize your process and, consequently, your profitability. You can also visit upflow.io for getting more relevant and in-depth information.
- 1 1. Identify your target accounts receivable amounts
- 2 2. Inventory and accounts receivable should be aligned
- 3 3. Define the use of current in-stocks
- 4 4. Report on accounts receivable outcomes and learnings
- 5 5. Agree on performance targets, set up an allowance and implement tracking software
- 6 1. Create a Procurement Log
- 7 2. Check Your Bank Statements
- 8 3. Business-to-Business Invoice Template
1. Identify your target accounts receivable amounts
If you’re not sure how to do this, you should define your target accounts receivable amounts first. These are the numbers you’ll be shooting for. For example, let’s say you have a small medical-surgical outfit that does two deliveries per month and your current target accounts receivable amounts are $50,000 in December and $40,000 in September. In order to generate $10,000 in December, you’ll need to collect at least $11,500 in accounts receivable.
Your profit margin is your goal, so it’s important to factor that into your target account receivable amounts. Also, a good job is a thorough job that considers all the possible costs to collect, including collections overheads, staff costs, cost of sales, supplies, rent, building insurance and any other overhead costs you might incur.
2. Inventory and accounts receivable should be aligned
Accounts receivable and inventory management need to be aligned at all times to ensure both processes are working together to optimize results. Remember, an over-stocked receivable is a receivable that has not sold. A reasonable amount of time is usually the best time to invoice. If you bill customers too quickly, you run the risk of losing a customer or taking on a high-cost receivable.
Additionally, if you spend too much on accounts receivable, you may end up funding an unnecessary employee expense.
3. Define the use of current in-stocks
When analyzing the value of a receivable, try to understand if the stock number is appropriate. Do you have a good source of supply for the account or is it just average in the industry? What makes the stock for your accounts receivable different from the industry average? Is it higher because of product mix or lower because of products they’re selling? Is it up, down or flat?
Keep on top of your in-stocks, especially when they go down. A good job minimizes any gaps between accounts receivable and inventory.
4. Report on accounts receivable outcomes and learnings
The good job is a business decision. It influences your profit margin and the financial performance of your company. It’s therefore important that you measure the effectiveness of your job at regular intervals and you analyze the performance of the job and learnings. These are vital for future improvements.
This analysis should include:
- Sales performance data
- Capital expenditures and assets (such as warehousing and vehicles)
- Accounts receivable by asset type and industry
- Billable amount analysis
- Deadlines and payment history analysis
- Check-in with management and customers on the progress
Keeping on top of your accounts receivable process ensures your company’s reputation and profitability are sustainable. That’s why it’s crucial that you monitor and learn from your progress.
5. Agree on performance targets, set up an allowance and implement tracking software
The company needs an agreement on targets and how these are monitored. To achieve this, you should work with your client to determine the payment policies and credit limits you want to adhere to. It’s essential you set up an allowance (generally, $25,000 for most SMBs) for good jobs with positive cash flows. Be consistent with what you’re measuring, and establish a procedure for performing your tasks.
Improving accounts receivable processes are necessary to maintain a healthy business. This is especially true for retailers with an over-reliance on inventory or suppliers who might be expecting payments to come as quickly as possible. How can you show an immediate increase in the number of invoices paid on time? Here are few simple strategies.
1. Create a Procurement Log
Remember the days when you used to take receipts home from vendors? It’s a long, long time ago, and that kind of bureaucracy is no longer necessary. But if you were to create a procurement log for each vendor you contract with, you would be able to track your sales on a weekly basis and pay for inventory on a monthly basis.
Provide your employees with access to this log. This ensures they don’t simply forget that, say, you sent 20 checks for the inventory you were carrying. Give your employees the log and create a written policy for all parties to sign that confirms its accuracy and completeness.
2. Check Your Bank Statements
If you are one of those Americans who still rely on bank statements for payment, you could find that you are on the verge of a cash flow crisis. If you want to improve your business cash flow, you need to ensure you are paying vendors promptly.
Use a tool such as QuickBooks Online. It will automatically filter your bank statements into expenses and income so you can easily see when money is coming in or going out.
3. Business-to-Business Invoice Template
Your cash flow improvement isn’t going to happen unless you are improving your accounts receivable. There are many online templates out there, including one for bookkeeping. But if you are just starting a business, you may be limited to using the template provided by the organization you are dealing with.
Choose a template that is targeted at your industry. It will be easier for you to decide what information is necessary and appropriate to include. It may include things such as a specific due date for payment. You may also want to set an e-bill for payment. This will help you send invoices and generate receipt files at a glance so you won’t have to spend as much time entering payment details into your accounting software.
In summary, you want to reduce the amount of paperwork your invoices contain. You should also be tracking payment dates in order to prevent late payment. In general, if you don’t use any of these strategies, you are only increasing the time it takes you to receive your revenue. Manage your accounts receivable properly and you’ll deliver an excellent profit margin and grow your company’s customer base. The important thing is to get these issues right in order to meet the challenge and grow your business.