When it comes to revenue flow, accounts receivable is an important department within your business. As a result, if your accounts receivable department is not operating efficiently, it could spell trouble for your company. Make sure you know how to recognize when your company might be in trouble.
Poor Cash Flow
Have you noticed a decline in the available financial resources your business has access to? The main priority of an accounts receivable department is to ensure the business collects on any money it's due as soon as possible. When this department is not excelling at its role, funds will be low, and it might even become harder for your company to meets its financial obligations. A good accounts receivable department will ensure that your business has access to the funds it needs.
The goal should always be to send out invoices to clients as soon as possible. In fact, depending on the size of the project, it's great to send the invoices within somewhere around 30 days. If services are performed for clients and months go by before they are invoiced, issues can arise. Clients might try to dispute an invoice if the services were performed some time ago or they might forget to pay, as the service might not be fresh on their minds. A stack of un-invoiced services is never good.
Lengthy DSO Figures
All invoices are sent with payment terms. While the vast majority of clients will pay the invoice without any issues, some clients have to be reminded. For those in this group, the DSO or days sales outstanding will be quite high, as a long time has passed from the time of the service and the bill is still unpaid. If you have a stack of invoices with high DSO figures, your accounts receivable department is not doing their job collecting the money owed to you.
Lack of Credit Standards
If a large bulk of your services are performed for other businesses, you might allow some of these companies to enter into a credit agreement. Credit agreements are fine, but your accounts receivable team should have a standard in place by which they accept credit agreements. For instance, businesses can only enter into one after being a customer for a certain amount of time, such as one year, or when the services exceed a certain dollar value.
If you recognize any of these issues, it's time to take action. Contact a business accounting service to learn more about bringing improvements to your business.