manage accounts receivable to increase cash flow

Receivables Management – Improving Cash Flow in Your Small Business

Late payments and outstanding accounts receivable have been named the most common causes of cash flow crises in the UK. Businesses in the UK are growing more and more concerned about their cash flow over recent years.

A survey by Santander Corporate & Commercial reveals that almost one in six UK small businesses say they are ‘very’ concerned about managing cash flow effectively over the next 12 months, with a further 27 per cent saying they are ‘quite’ concerned.

So how can small businesses manage their credit better and avoid falling into a cycle of poor cash flow?

Let’s get back to basics with 5 steps to help you get paid on time and manage cash flow effectively.

1. Set out your terms and conditions. When you enter into a new relationship with a customer, make sure they know your conditions for providing credit. It needs to be a concise document, which outlines the payment terms. Make sure you have written acceptance from the customer of your terms and conditions.

2. Get to know who you are dealing with. Make filling in a credit application form part of your process for giving credit to customers. That way you can get all the necessary information like their place of business and name of the contact person. It is also a good idea to get references from other suppliers to determine the customer’s ability to pay on time.

3. Keep good financial records. This includes making sure you are keep track of all invoices and payments made by customers. A simple bookkeeping program can be very helpful as it can help you to generate invoices, and also list and track any invoices that may be overdue.

4. Encourage customers to pay on time. It might sound obvious, but sending out your invoice on time will help prompt your customer to pay on time, as will setting out clear consequences for late payments. An easy accounting program like Cashflow Manager can help you create invoices which can then be sent out by post or emailed, so the customer receives it straight away. Basically, the shorter the delay in invoicing, the shorter the wait to get paid.

5. Always follow up! Once an invoice has been issued, keep an eye on its progress. If a payment becomes overdue, make sure you begin your follow up procedure straight away. Don’t be afraid to send a letter or email asking for the payment and restating the consequences of not paying. If contacting the debtor does not resolve the issue, you could add debt recovery costs or use a debt collection agency to assist with the process.
If you are proactive, communicate clearly and keep a record of everything, you will be well on the road to establishing a strong credit policy in your small business. You will find that if you vigilant about credit, your suppliers and clients will be much happier, and you will reduce the cash flow concerns in your business.

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