Having Account Receivables Issues? - Improve Now!

Almost any small business can use advice on how to improve its collection cycle. The first line of defense against late payments is a complete invoice. Your bills should be accurate, detailed and easy to understand. If difficult to understand, then your client will need to call for additional information. That translates into "you have been added to their to-do list," which increases the time of your collection cycle. Include on each invoice:

• Your company's contact information: name, address, tax id number, phone and contact person
• The date the invoice was prepared
• The customer's name and address
• A description of the goods or services sold to the customer - itemize, if possible (An itemized bill is harder to contest.)
• The amount due, with sales tax amount broken out
• When the invoice is due

Once prepared, send invoices promptly. Another piece of small business advice is the longer you take to bill a customer the less likely you are to receive payment for the goods and services provided. Following is a simple calculation for a powerful tracking tool that can help you adjust your cash in-flow on an as-needed basis:

Step 1: Calculate your average collection period by dividing your total sales for the previous year by 365. This gives you your average daily sales volume. (Total Sales / 365 Days = Average Daily Sales Volume)

Step 2: Then divide your average daily sales volume into your current accounts receivable balance to get the number of days it takes to collect a bill. (Average Accounts Receivable Collection Period = Average Daily Sales Volume / Current Accounts Receivable Balance)
Now that you know your average accounts receivable collection period, you then need to interpret that number as it relates to your business by asking four important bookkeeping service questions.

1. Is your average accounts receivable collection period in line with the company's credit policy?
2. Are you billing your customers consistently?
3. Are you billing your customers effectively?
4. Are you tracking overdue accounts and taking consistent action to collect past due accounts?

By answering these four basic questions, implementing a few bookkeeping service procedures and heeding this small business advice, you'll soon be running a fine-tuned collection machine.