Inefficient Accounts Receivables Can Spell Trouble

Inefficient accounts receivables can be a sign of a company that is in financial trouble. If your company struggles with accounts receivables, you may need to assess the source of your problems. Many businesses measure their success in the amount of sales that they make. If sales are up, the managers and the business owner are happy. However, a business is not truly making any money until the money from those sales is collected. You can sell as much as you want, but if you do not collect the money in a timely fashion, your business could be on the way to bankruptcy. Having an efficient accounts receivables process is extremely important if you want to be successful in business. Here are a few things to consider about accounts receivables and how long it takes to collect them.

Days Sales Outstanding

One of the most common terms used in accounts receivables is days sales outstanding. This is a term that is used to describe the amount of days it takes from a sale, to collect the payment for that sale. Companies tend to look at this measurement as a good way to tell how efficient they are at collecting accounts receivables. Businesses that have a low days sales outstanding number are viewed as efficient while companies with a high DSO number are viewed as inefficient. If you want to be successful in business, you need to be able to get your days sales outstanding number down.

Evaluating Policies

If your business is struggling with collecting accounts receivables, there are a number of things that you can do to improve it. Sometimes, the culprit of your troubles are the policies that you have set up. For example, some businesses do not require a large down payment when a substantial sale is made. If you want to increase your working capital, you might consider requiring customers to make bigger down payments. In addition, some customers should not be extended credit at all. Sometimes, businesses get in the habit of offering credit to everyone because they want to increase sales. If you do this, some of the customers will not end up paying.

You might also want to evaluate the terms that you extend to your customers.. For example, instead of giving businesses 90 days to pay you back, you might reduce that to 60 or 30 days. Many times, businesses get in the habit of putting off payments and by the time 90 days comes around, they do not have the money to pay you back. Tighten up your accounts receivables policies in order to increase the amount of money that you can collect from your customers.

Company Wide Initiative

If you want to improve accounts receivables, you need to make sure that everyone in the company understands your policy. This can not be something that you leave to your collections department only. The sales staff needs to know that this is a priority so that the necessary changes can be made.

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