Controlling Your Cash Flow

For many businesses, monitoring customer accounts receivable and collecting them on a timely basis is the key element of controlling cash flow.

It all starts with sound credit-granting policies, which ensure that you extend credit only to customers who are likely to pay you on a timely basis. For likely deadbeats, it's cash on the barrelhead!

Once you make the sale, issue your invoice promptly. You can make it easier for customers to pay you quickly by accepting credit card payments and bank transfers, in addition to checks.

Another tip is to make it easy for customers to know their account balances. Many businesses issue monthly customer statements which show the status of the customer's account, including outstanding unpaid invoices and recent payments received. In the event a customer doesn't receive an invoice, its presence on a statement can prompt the buyer to follow up and request a replacement invoice. But don't count on it. It's the seller's job to follow up on unpaid invoices.

At some point, you'll need to decide what collection procedures you need to implement. If you offer credit terms of 30 days, perhaps you issue a polite reminder at the 30 day mark, reminding customers of their responsibility to pay. If the payment is still past due after 60 days, you may escalate this to a telephone call to the customer contact. Make certain you note the results of the conversation, such as a promised payment date. It may come in handy, should future follow-up be necessary. Additional escalation that kicks in at 90 days past due may include a stiffly worded letter, which may hint at punitive measures, such as a cutoff of future supplies of products or services from your business. After 120 days, your customer communication may threaten legal action to recover the debt.