Rising business receivables can be a sign of a growing,
prosperous company – or of troubles ahead.
How can you know if your receivables are right-sized for your business?
Start by breaking down the numbers. A
report of your receivables listed by age will give you the information you
need. Track the percentage of invoices paid late and compare the information to
that of past years. Benchmark your statistics with those of your industry peers
and look at the amount of unapplied or unreconciled customer payments.
Do you notice an issue with too many
receivables? A receivables problem can be symptomatic of a defective accounting
system. Are customer payments posted to the proper accounts accurately and timely?
A delay in updating your records will make receivables collection less
efficient. Are late notices sent to customers quickly and regularly? Is staff
following up on outstanding bills? Perhaps your collections team needs training
to beef up skills.
Your sales procedures can also cause
problems. For example, extending credit to a borderline customer is a
temptation that can result in painful losses. Create a consistent credit
application process for your business. Make sure credit limits conform to company
policies and that they are strictly enforced. Check bank and vendor references
where appropriate.
What can you do before year end to
address past due customer invoices? Here are three tips.
1. Double down on
your collection efforts. Take advantage of the fact that your customers are
likely flush with cash from seasonal sales.
2. Pay
collection-related costs before year end. This ordinary business expense can
give you an additional tax deduction this year.
3. If your business
is on the accrual basis, consider writing off old invoices that you deem
uncollectible. Bad debt expense can lower your taxable income.
Contact us for help in strengthening
your receivables process and weeding out your problem accounts.
For
more information, call us at (219) 769-3616 with your questions, or email them
to gward@swartz-retson.com.
No comments:
Post a Comment