The Beginner’s Guide to Managing Receivables

by / Friday, 03 November 2017 / Published in Financing Blog

Accounts receivable unpaid money used for goods or services rendered. In other words, accounts receivable is credit extended to a company by a merchant. However, unlike traditional forms of credit, accounts receivable usually have a shorter time frame for payment of the entire balance. Any company able to extend accounts receivables to another business should realize that it is ultimately in control of all the parameters. Therefore, before you venture into the world of managing receivables, it is important to understand all the nuances.

It is important to create a system for managing all the accounts receivable that you plan to work with. There is a plethora of invoice software that will help you keep track of the various merchants you sell to. You should also have a clear idea of invoice timelines, how much initial credit you are willing to extend and any incentives for customers who maintain good standing as well as plans for collection to those merchants who do not pay on time.

Secondly, when managing receivables, you must develop a strategy for determining the credit worthiness of merchants. Not everyone who applies can be accepted. You should develop a credit application to garner as much information about the potential client as possible. Credit worthiness is not only about what is visible on paper, but also a process of trial and error. A merchant who initially looks good on paper may not always be the best client. Conversely, a merchant who appears to be a credit risk could in fact turn out to be one your best clients.

Third and most importantly, remember that managing accounts receivable is not for the faint of heart. Not only are you doling out merchandise and extending credit, but you are also playing the role of collection agent. Anyone dealing with accounts receivable should proactively send invoices, notices and reminders. Although there is always the hope that all of your merchants will pay on time, if not early, some merchants will be difficult to collect from.

In the event that you have delinquent merchants, there is recourse you can take. However, you should give merchants adequate notice by telephone, email and postal mail at regular intervals until your cut-off period. After your final warning that shows due diligence in attempting to collect the debt, you have the option of notifying the credit bureaus and seeking the aid of official collection agencies.

Accounts receivables can be frustrating and rewarding all at the same time. With proper organization, managing receivables can also be handled with ease and expertise.