Cash is what keeps a business running, however, often we see that cash flow gets into trouble because companies are not on top of their Accounts Receivables (AR). Here are the most common mistakes in managing AR:
Mistake #1: Customers are not sent timely reminders
This one is easiest to fix, however, most ignored. More than 60% of customers pay on time because they were reminded of the invoice due date. Depending on credit period, sending periodic reminders from the time invoice is sent till the due date is important. If the sales team is responsible for collection, keep them in loop when such reminders are sent to the customers. Remember, reminding someone about your legitimate due, if done correctly, will not be misconstrued.
Mistake #2: Disputed / Rejected invoices do not have a resolution owner
Whenever the Finance or billing department raises an invoice, one believes it will be collected. Many times, an invoice can be incorrect or may get disputed due to multiple issues. But things start falling through the cracks as internally there is no resolution owner. Creating / tracking tasks and identifying owner to close the dependable is key to minimize disputes and get paid faster.
Mistake #3: Ignoring credit department’s risk alert
This is an important one. In these uncertain times, the credit risk of many erstwhile strong businesses has taken a beating. Sales needs to be in close touch with Credit department before accepting payment terms. Credit departments are now extra vigilant especially about liquidity risk of customers.
Mistake #4: Missing out milestone-based billing and payments
There are situations where companies miss the milestone to bill on time. In a complex contract which has milestone base deliverables and payments, one needs to have a tracking mechanism and be proactive to generate milestone invoices and send reminders on time.
Mistake #5: Not reconciling AR book with your customers
As your business relationship with customers gets deeper and the number of invoices and payments goes higher, not matching your books with your customers can lead to disputes, write offs and at times may cost you your customer. Nothing upsets a customer more than a huge mismatch between their records with yours. Following a discipline to reconcile AR and customer payments on a periodic basis, say monthly, will keep books clean and your customer happy.
Kumar Karpe Co-founder and CEO Kapittx