A Guide to Reduce Your Outstanding Receivables

outstanding receivables

Every business works for a profit motive. The business can earn profits by selling its products in two ways:

  1. Cash Basis (Cash Trade)
  2. Credit basis (or Outstanding Receivables)

If you do business more on outstanding receivables then you might face an issue with the cash flow, its management, and a debt-crunch. There is no need to fret as there are multiple ways to reduce it. If you are headed towards that direction, then you must have your sight on the below points:

  • Adhere to a Plan
Planning is a bridge between where we are & where we want to go. If you want to develop your credit policy, then build a plan around it.

While developing a financial plan, keep in mind your monetary resources and then start jotting down points around it, considering your daily workflow.

Your financial planning will be a foundation stone for your subsequent decisions, which will assist you in solving:

  1. How much my business should be on a cash basis?
  2. How much my sales should be on outstanding receivables?
  • Provide authentic information to the stakeholders

Your business stakeholders must have a clear picture of your business financial health in their heads. Furnish them with the right information about it, as it is relevant for you and your business partners.

Transparency will show the stakeholders’ belief in the business, and on the other hand, the business will surely become a believer of the stakeholder.

The details, which you will furnish in front of the stakeholders, must include your real situation of accounts receivables.

  • Develop defined roles

Your definition of your credit and collection roles make it a simple game to make the numbers of accounts receivables go downfall.

Every business must go for the defined roles, irrespective, of their nature and size of the business. Although, the small business has a few employees in their accounting department, in comparison, to the large business, which has hundreds of employees to mind the accounting & financial aspects of the business.
  • Proper messaging mechanism
Every message must reach to the right party at the right time. For example, a message comes from a debtor, for the business owner (which is you); must reach the concerned person on time.

Make a proper way of inbound and outbound messages. This will surely help you in improving your business processes, as you have standardized all the inbound & outbound messages.

A question will appear – “How you will do this?”

It’s simple! You can make your scripts for all the inbound & outbound calls, design templates for your credit letters, prepare a list of questions & answers. You can take them from Microsoft Word.

  • A proper documentation
  1. In a large business: –

A Proper documentation must be there of all the activities, in a very centralized manner. The activities come under this are:

  1. Phone Calls
  2. Emails
  3. Chats

Every phone call, email, and chat must be documented in a precise manner. These must be saved under complete lockdown security and only access to key employees must be given, to refrain from any security or any other type of breaches.

  1. In a small business: –

In a small business, where the book-keeping is basic and does not take place as the large businesses, an organized memo system should suffice.

When you have a large-scale business When you have a small-scale business
A proper documentation of the client’s phone calls, emails & chats must be kept in a precise manner. There must be the documentation of memos. It means, there must be a well-organized memo system.
  • Step by step resolutions for the dispute

Disputes will always be standing at your door-step, whether you produce the world’s finest product or the worst product. If you are in any business, you will hear disputes from your customers.

You must take care of every dispute, and it is a known thing in the financial world that outstanding receivables are a difficult game to beat. All of the disputes, regarding outstanding receivables, whether it is legitimate or not, eats out most of the business’ time.

If there is a dispute in outstanding receivables, it must be handled at the earliest, because your business’ cash is trapped in that negotiable instrument.

  • A centralized communication centers

Every business should adhere to its communication policy; the communication policy must be centralized to the business.

A team can work smoothly if there are apt communication policies, which are there for passing information to the centralized source.

Our Account Receivable Services fairly focus on this concept of centralized communication for convenience.
  • Well Management of Resources

The credit manager is dedicated to duty, which is managing the credit health of the business. The key resources must always be in sight of the credit manager. And they must be aware of the time consumed on maintaining credit activities.

It is quite known that some businesses have a dedicated clerk for their accounting work, while some prefer to go for an office manager.

The advantage of good management of resources leads to

·         Higher capacity

·         Increased productivity

·         Goals are met

·         Skilled skill-set

·         One-stop solutions

·         Earliest resolutions

  • The more important the account, the higher will be its priority
A simple rule:

The account which is important to the business must get the highest priority.

Generally, your business must deal with the two types of customers in outstanding receivables:

  1. In the first category, those customers come, who is a golden heap to the business, means gives large revenue, but they lack at paying bills.
  2. The second category consists of those customers, who pay a large billing amount on a regular basis, while still working on smaller invoices.
  • Let your business processes be automated

It would be better if your business comes under the automated process, as repetitive and manual calculations consume a large part of the time.

If a business professional ends up doing this only, then it would be difficult to handle the financial aspects of it.

Turn your business operations into the automated ones, so that your accountants are free from repetitive and manual work, and can handle the business efficiently.

It’s not only calculations that tend to repeat itself, but there are other business tasks also, for example:

  • Invoice reprinting
  • Statement delivery
  • Due date reminders

The above tasks must be automated, which can lead to the generation of direct revenue through efficiency.

Our Words

Business works in different environments, sometimes under the high liquidity and sometimes under low liquidity. A proper equilibrium must be maintained between them, which states that a business is earning the right amount of revenue.

Our articles have mainly gone around the Outstanding Receivables topic. In short words, a business must manage its Accounts Receivables at a proper time. This is because the more cash the business holds, the better it is for it.

Steven Martin Getting the balance right in life is the key to happiness, same is with your books. I love reading about business case studies and economic policies. I aim that with my writing, the readers are able to get through the fine details of the perfect financial health. My areas of interest in writing include things such as Accounts Receivables Services, CPA services, bookkeeping services, and accounting services on a large scale. I love the fact that having the right Accounting services for small businesses, can help them in expansion and growth in so many ways!

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