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Reduce credit terms. Change credit terms you offer your customers. If you offer terms of net 45, reduce it to net 30. You might offer a discount of 1% if paid within 10 days else net due in 30 days. This is equivalent to 18 % annual interest and most businesses will take those terms.
Shorten invoice process. Bill your customers immediately. This is a big one. Many service organizations wait until end of month to tally billable hours and determine customer charges. Do not wait until end of month. This could reduce your day’s receivable by as much as 15 days right there. Email or fax your invoices to save another day or two (e.g. QuickBooks accounting software contains this feature).
Reduce billing errors. Most customers delay payments because of invoice errors. Customers won’t recognize invoice until it is corrected and may not even notify you, vendor, of error until you call for collection. Again, avoiding this delay in error and time will amount to cash savings.
Train Accounts Receivables personnel. Make sure that all personnel involved are training to understand performance metrics for their jobs. For example, a company will manage $500,000 in monthly A/R balances (that’s $6 Million a year!) using an A/R clerk who makes $30,000. But then supervisor uses nothing more than On-The-Job (OJT) training for clerk. Then CFO thinks that he or she (the CFO) is really managing money. But, in reality, that’s not case; clerk is managing money day-to-day. So shouldn’t A/R clerk receive enough training to manage such a significant amount? After all, it only takes a 6% change in A/R in one month to equal A/R clerk’s entire annual salary. Isn’t A/R savings worth a little extra time in training?
Maximizing Accounting Process. With Accounts Receivable department you should use each element of process to gain most benefit for your business. And with time-saving procedures set in place, you will let your efficiency work for you.
Grabbing Your Policy Goal
With well-defined processes and procedures in place, you will increase efficiency by reducing your Average Days Collection. And of course a reduction in Average Days Collection means your Accounts Receivable balance will also fall, creating more cash in cash on hand. And just like that we’re halfway to our $1,000,000 goal. All you have to do is grab it.
Next week, we will look at finding still another $250,000 in Sales function – which will give us $750,000 toward our goal of 1 million dollars in cash savings. So, again, not only do you aim to reap rewards of extra savings to your bottom line, but also see more cash in bank - $1,000,000 cash to be exact.
Chris Anderson is currently the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the layout, process design and implementation to increase performance. To learn how to increase your business performance, visit: Bizmanualz, Inc.