What is Accounts Receivable Turnover? – As a business owner, you know that cash is the life blood of your business. Accounts receivable turnover is the measurement of how quickly you are paid by your customers. Now you might be thinking, “How do I get paid faster?” Or “How do I improve my accounts receivables turnover?”
Set Yourself Apart Through Customer Service – One way to receive payments quicker is to have the salesperson contact the customer immediately after the customer receives their invoice. It is your opportunity to confirm the customer understands the bill, was happy with the services or goods received, or resolve any outstanding issues before payment is due. This customer service approach sets you apart from your competition.
Assign someone on the team to review outstanding accounts approaching 30 days. Give your customers a courtesy call to make sure payments will be arriving on time. Let your customers know that you are watching for payment. They are less likely to take advantage of you.
Make your customers aware that you take credit cards. Credit cards are convenient for your customers and may help you get paid faster. You may have to pay a fee to the credit card company, but you will have almost immediate access to the funds. Ask yourself is it better to be paid today or should you risk that you may not receive payment for 30, 60, or 90 days?
Best Practices for Offering Credit – The first step to best practices is to have a credit policy. Your credit policy should include what types of customers you will extend credit and answer the following types of questions:
- Will you extend credit to only businesses you deal with on a monthly basis?
- Will you require a deposit for new customers or special orders?
- What is the minimum purchase required to be invoiced for payment later?
- Will invoices be due in 7 days, 14 days, 30 days or more?
- How many years does the company need to have been in business?
- Do they have at least 3 vendor references? Do they have a bank?
- What will be the customer credit limit?
- What happens if the customer does not pay? Who pays if legal action is required?
Another best practice is to have a credit application. The credit application will include credit policies outlined above. In addition, check the customer’s credit rating with D&B, Experian, or Equifax and call vendor references. Vendors will tell you if the customer is paying on time. They have no interest in helping a customer open a new account if they are not currently being paid.
Don’t Be Afraid to Walk Away – If you gave someone credit in the past and you are not being paid don’t sell them anything else until you receive payment. Businesses wait too long before they stop servicing non-paying customers. Continuing service can affect your cash flow and put your business in jeopardy. Don’t be afraid to tell the customer no. Remember you have already lost money if they haven’t paid you.
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