A/R reports need to be much more than a ledger to track payments
Receivables, as we all know, are the outcome of doing business; the payment from customers for the product or service you delivered. But your accounts receivables (A/R) report needs to be so much more than simply a ledger that tracks payments received — it is the lifeblood of your business and you need a clear strategy for managing it.
A/R reports are tied to your business’s cash flow so, to have a good handle on your cash flow, you need to understand your reports. These reports give you insight into your customers’ habits — and the key to managing your cash flow is to get paid when you expect to get paid.
However, the insight in these reports goes beyond simply having a snapshot of the customers that have fallen behind on their payments. For example, having no clients in arrears likely means that your business is running smoothly (financially, at least). But, consistently having to wait past your 30- or 60-day deadline is likely a thorn in the side of your business’s cash flow management and is an indication that it’s time to reconsider not only how you manage your invoicing but your sales strategy as well.
One strategy is to ask for a percentage of the total invoice up-front, before any service or product is delivered, to keep the cash flowing and ensure that you do not end up completely out-of-pocket should a customer fail to pay up.
Another effective A/R report strategy is to offer a discount (typically 5%) to customers who pay by an early-bird deadline. This tactic keeps the cash flowing in a timely manner, even if it leaves you 5% short. (Although a good way to offset that is to quietly raise your prices by 5%.)
Regardless of the cash flow management strategy you develop as a result of examining your A/R reports, open communication with customers is a must. The belief that effective A/R report management can only be achieved by hounding customers to pay up only leads to your business being placed at the bottom of the pile. Instead, talk to and work with your customers to come to an acceptable solution. Most customers are not crooks; they want to pay up but sometimes, for one reason or another, they simply can’t meet their obligation on time.