Show Me The Money: Top 12 Best AR Practices

Top 12 Accounts Receivable Best Practices For Smaller Companies

In an ideal situation, purchase and payment are simultaneous, but in a modern “trade credit” economy, in order to keep customers and grow your business you need to offer credit terms. Even with the buyer’s agreement on when payment is supposed to be due, payments will often lag, putting a dent in your cash flow or worse, forcing you to increase borrowing to maintain operations. Poor accounts receivable practices equal poor cash flow, so putting some or all of these basic suggestions into practice can help your bottom line. It's that simple.

1. Credit Management: It’s surprising how many smaller companies are penny wise and pound-foolish. They will try to save the $30-$50 cost of a legitimate credit report, either by doing nothing at all and hoping for the best, or relying on cut-rate Internet services costing (and usually worth no more than) a couple of dollars. This is like rolling the dice: sometimes it works out, but when it doesn’t, a multi-thousand dollar bad debt can ensue. In the long-term, it is a strategy destined for failure.

2. Shorten Payment Terms: Forget the 'Net 30' or 'Net 45.' Use 'Payment due upon receipt”, or Cash-in-Advance for problem payers or those with no history with you.

3. Offer Early Payment Discounts: If you do extend trade credit, try a prompt payment cash discount, such as 2%/10 Net 20 Days. Customers want to save a couple bucks, too, and are more inclined to pay up in early if they can get a discount.

4. Enforce Early-Payment Discounts. If you give a discount, whatever you do, don’t get into the habit of letting the customer have the discount and paying late, too.

5. E-Mail Invoices: Using electronic billing or email, deliver invoices to customers instantly. You can also ask them for a confirmation of payment date in the email.

6. Offer Electronic Payment Options: Make sure you take payment via electronic funds transfer -- include your EFT banking information (bank, branch and account number) on your invoices. Be flexible: accept PayPal and credit cards, too.

7. Collection Management: Phone, Phone, Phone: Don't be lazy, pick up the phone and call delinquent accounts directly because the personal touch -- if handled professionally -- is much more effective than e-mail and letters. To get even better results in the future, call back to let the customer know you received the payment. They will remember that.

8. Accounts Receivable Management: Monitor all accounts receivable at least on a weekly basis and follow up on those customers when due, or in the case of very large invoices, a few days ahead of the due date as a friendly reminder to them that it is important to you.

9. Keep Records: Although this should be obvious, keep a running record of all contacts, including e-mails sent, phone calls made, and customer responses received.

10. Systems. Look at credit and accounts receivable tracking and workflow systems that help you manage the entire credit to payment cycle. A well-designed system will ensure that nothing slips through the cracks. There are a number of Internet based systems for all sizes of companies.

11. Professional Outsourcing. Call in a professional credit and accounts receivable outsourcing service. You will save you money, credit losses, and overhead in the long-term. Plus, you know that the job will get done without all the management hassles.

12. If All Else Fails. Before an overdue account turns into a bad debt, contact a Collection Agency. Forget about selling to that customer again, unless it's cash up front, but then again, customers that don't pay are not customers you need.

Smyyth LLC -- since 1906

Order-to-Cash Services and Technology

Smyyth provides Order-to-Cash Outsourcing, Services and Technology. Credit services include credit groups, reporting and scoring, and trade credit insurance. Outsourcing includes management of credit, accounts receivable, collections, deduction management, and profit recovery. Our Carixa Internet technology streamlines operations, slashes costs, and increases your profits. Built on Six Sigma principles and SAS 70 Certified.

For more information: Visit www.smyyth.com

© Smyyth LLC 2011

Amazon Deal With California

When Amazon.com threatened to fund a public referendum to overturn California's online tax law that would collect sales tax on online purchases by defining Amazon 'affiliates' as a sales presence in the state, the state compromised by giving a one-year delay in implementing sales tax collection if Amazon dropped its threatened campaign.

Mail order and online companies are not required to collect sales tax on purchases from states where the company does not have a 'physical presence' -- store, warehouse, sales office, and so on. States, which are losing out on an estimated $23 billion in tax collections per year, are defining 'affiliates' -- websites that get paid a commission for every item sold by Amazon via links on the those websites -- as presences. Amazon happens to be the largest online player, but other companies do the same thing and will be subject to sales tax collection.

Retailers assert forcing online companies to collect sales tax would level the selling playing field. Online companies point to a 1992 US Supreme Court decision, Quill Corp. vs. North Dakota, which found that forcing a company with no physical presence in the state to pay sales tax violated constitutional provisions barring interference with interstate commerce.

Amazon's agreement with California -- and you can bet more states will pass such a tax law -- contains the provision that Congress could pass a national sales tax law to supercede state laws in 2012. Such national efforts failed before, and given the bipolar bipartisanship of the current Congress, it seems unlikely a national law could be passed.

A&P Auditing

Great Atlantic & Pacific Tea Company filed with the US Bankruptcy Court on September 12, 2011 a motion to expand the scope of employment of PricewaterhouseCoopers as auditor to include audit services.

Borders Severance Payments

The US Bankruptcy Court on September 8, 2011 signed off on an order that allows the book seller to pay executives Mike Edwards, Scott Henry, Jim Frering, and Rosalind Thompson $125,000 each — the maximum payment allowed under the Bankruptcy Code.

NumBytes 58: Google Power

Google consumed a whopping 2.26 terrawatt hours of electricity in 2010 -- enough to power 200,000 average US homes. They promise to only use that power for good.

Google Advice

Google Industry Director for Retail Todd Pollak, at the Shop.org conference, offered some pointers for retailers seeking to bridge the gulf between bricks and clicks. He suggested retailers commit to turning their company into a single profit center instead of a number of competing fiefdoms because customers don't care about divisions, they just see one single company. Google testing found that closer integration of website and store results in more store visits and sales.

He also contended that retailers need continuous testing of their sites to smooth customer use, even to the extent of studying how customers purchase different items. He asserted the 'one size fits all' interface does not work as well as customized approaches among different products because customers do not buy apparel the same way they buy small appliances or toys or any other product. Finally, Pollak recommended compiling stats on a per customer instead of per channel basis to better cater to customer habits.

Disney Retail Strategy Shift

Walt Disney Co. restructured to combine its separate DVDs, toys, apparel, and video games into a single Disney Consumer Products group in effort to boost sagging DVD sales and retain shelf space at major retailers. The company also named Robert Chapek as president of the new division.