Business revenues have been hit badly due to the pandemic, and businesses are still trying to adapt to the new normal. Not only have revenues come down, but the collection of revenues from customers has also been affected.
Every business offers credit to its customers, who are also known as trade debtors. The debtor collection or credit period varies from company to company. The pandemic has made it difficult for the trade debtors to settle their dues within the debtor collection period.
Trade debtors owe you money, which is why accounts receivable on the balance sheet are found on the asset side. Therefore, as a business owner, it has become important to have an efficient accounts receivable management process to ensure improved cash flows.
Here are a few smart ways to optimize your accounts receivable process:
You need to update yourself on the financial condition of your customers. Find out how much they owe you and what they can settle. Have a discussion with them on how you can make things easier for them. This genuine concern for them during times of crisis like the pandemic will pay rich dividends when the economic conditions improve.
Work on your relationship with existing customers and attract new customers through discounts and other offers. Inform your customers about possible delays in delivery due to the pandemic. Offer flexible payment options to existing customers. Your cash flows might be stretched, but it’s your existing customers who are more likely to pay you than a new prospect.
Your accounts receivable process during normal times and now won’t be the same. You might have been flexible with your debt collection period when the economy was booming; doing the same now would challenge your survival now. Your accounts receivables need to be audited, and follow-ups of delayed payments are done on an urgent basis.
The global economy has shrunk by 7% during 2020, and it will take time for things to get back to normal. The frequency of reviewing your accounts receivable process would be higher due to the current crisis.
Meet all your customers and find out their financial plans. This will help in establishing your new accounts receivable process. You will have to consider customers who can pay on time, those who need an extension, and those who can pay part of their dues. Realizing a portion of your debt is better than nothing at all.
While negotiating the revised accounts receivable process, make sure your requirements in terms of cash flows are met. Some customers would require a 2-4 week extension since they might have lost their jobs and not have the funds to settle their dues. The final extension should be on mutually beneficial terms.
Don’t act in haste and start charging late fees to defaulters. The pandemic has affected everyone financially, and their inability to settle your outstanding payments should not be penalized. By waiving the penalty, you build your goodwill and have a higher chance of getting more business from these customers when the economy bounces back.
These difficult times are temporary and how you treat your customers now decides the future of your business.
Offers discounts to your customers and incentivize them to settle their full dues. Sometimes customers might want to clear their bills but can’t do so since they lack the necessary funds. The discounted bill helps your customers pay their dues in full and protects your cash flows.
Offer flexibility in payment modes apart from rescheduling the debtor collection period for your trade debtors. Customers should be able to settle their outstanding bills online, by check or cash. If there are any specific payment option that some customers need, incorporate that to ensure better cash flows.
There are multiple options available for automating your accounts receivable process, and you need to invest in one if you haven’t already. It would eliminate delays in the follow-up and collection of your accounts receivables. Missing out on collections is a deficiency on your part, and accounts receivable software is the only solution.
You can create an aging schedule for your debtors, get a summary of collections and their due dates, send timely reminders to your debtors, and make sure that you don’t miss out on payments from debtors.
Having an efficient accounts receivable process is also vital for ensuring a hassle-free accounts payable process. While it is essential to keep a tab on your collections, you need to pay your trade creditors on time as well. If you fail to pay your bills on time, the supply of products and services essential to your business will be stopped or delayed. Cash flows depend on both accounts receivable and the accounts payable.
You need to focus on your accounts receivable during the pandemic because your survival depends on it. If you don’t have an accounts receivable accountant, you need to hire one today. An alternative option is to engage a firm offering accounts receivable services.
Weigh the pros and cons of hiring an in-house accounts receivable accountant versus outsourcing your accounts receivable services requirements to a professional firm. Your decision would depend on which option would allow you to concentrate on your core business and provide the required reports on time.
OHI is a specialized finance and accounting outsourcing service provider with over fifteen years of finance and accounting outsourcing experience. We have strong functional outsourcing expertise in end to end accounting processes covering daily accounting activities, reconciliations, month end and year-end account finalization processes, employee reimbursements, payroll processing, management reporting and financial analysis.
OHI serves close to 300+ clients across USA, UK and Canada. We invite you to experience finance and accounting outsourcing through us.
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