Manage and set AR policies
If you got paid for sales instantly, you would never have an AR problem and therefore any cash flow problems. However, this rarely happens in the real world. The key premise is to quicken the pace in which you transform supplies into products, inventory and receivables, and then receivables into liquid cash.
A few specific techniques to assist in improving your AR would be:
- extend discounts or concessions to customers who pay bills quickly.
- ask customers to pay deposits when orders are taken.
- ensure you have a smart credit policy
- require credit checks on all new account customers
- ensure you have a process in place to accept electronic payments
- issue invoices punctually and, if payments are slow, follow up promptly
- regularly review AR to identify and follow up on slow-paying customers
- implement a policy of cash on delivery (COD) as an alternative to refusing to do business with slow-paying customers.
Share your thoughts
Every organisation or business has a different set of AR policies that they follow, which suits their line of work and type of clients.
Apart from the ones listed in this article, what are some of the policies that you feel might be more effective to tackle the cash flow problems?
Financial Analysis for Business Decisions: Cash Flow Management
Financial Analysis for Business Decisions: Cash Flow Management
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