5 Ways Businesses Can Manage Accounts Receivable To Maximize Cash Flow

Author: Lisa Steiger, Senior Vice President, Houston Treasury Sales Manager 05/03/2021

Managing your accounts receivable to maximize cash flow is a critical aspect of operating your business successfully. Businesses that struggle to maintain a consistent cash flow rarely survive. In fact, according to a recent study in Entrepreneur Magazine, a bank found that approximately 82 percent of businesses fail due to cash flow management issues.

One of the most effective ways to establish a sustainable cash flow for your business is to proactively manage your accounts receivable. Doing so now is more important than ever due to an already-sluggish economy, lower revenues, and the ongoing impact of the COVID-19 pandemic. Here are several actions you can take to help your business run smoothly:

Evaluate Credit Terms

Credit terms are generally set as due upon receipt or due in a number of days, such as net 15 or net 30. You may need to consider specific factors about each customer; primarily, payment history. Giving your customer longer credit terms may positively affect the relationship but could negatively impact your cash flow.

Invoice Promptly

Immediately sending your invoice is essential, as it may take your customer time to conduct multi-step approvals. In addition, most accounts payable departments tend to make payments on weekly or biweekly intervals. The more time you give your customer to make their payment increases the likelihood your cash flow will remain steady.

Monitor Accounts Receivable

By monitoring your accounts receivable, you can address an issue immediately if a payment is late. Sometimes it may be a simple oversight, or the payment was lost in the mail. It could also indicate a recurring trend, in which case you might need to decide on applying stricter credit terms or ending the business relationship altogether.

Use a Collections Agency 

Typically, involving a collections agency is a last resort for customers who are routinely delinquent with their payments. Every situation has its own set of circumstances, and it may be a better option to first offer a payment plan or charge interest. However, a collections agency can sometimes save you time and effort that is better spent focused on your business. According to studies, one out of four small businesses experience difficulties in managing their accounts receivable because of customers that either don’t pay the full amount, pay beyond the terms set, or simply don’t pay at all.

Automate Accounts Receivable

Tracking payments manually or in a spreadsheet causes additional work and increases the chance that something will get overlooked. Fortunately, there are many applications available that automate the process of keeping track of your accounts receivable. These applications make it easier to create and send invoices, and can alert you when an expected payment becomes overdue.

There are many other factors involved in your business’ success, but these tips for managing your accounts receivable can improve your efforts to maintain a steady cash flow. Please visit the Receivables section of PlainsCapital.com to see how we can help you maximize the cash from your company’s accounts receivable.

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