Accounts Receivable
Q: How do I handle accounts receivable effectively? When should I be worried about unpaid receivables?
Accounts receivable can be tricky, especially when trying to keep good customer relations. The first step in handling accounts receivable effectively is to establish clear and transparent credit terms (e.g. payment due dates, penalties for late payment, discounts available, etc.) to ensure your customers understand the agreement and to prevent any confusion. After setting up credit terms, keep open communications with your customers. Send timely reminders regarding upcoming payments to reduce the likelihood of late payments and to strengthen your business relationships. Lastly, remember to document everything! This will ensure accurate record keeping and help you mitigate liability.
You should start to be worried about unpaid receivables when invoices are significantly overdue. It is important to keep in mind some potential red flags such as regular customers paying late or not paying multiple invoices at all or if communication from customer is rare or stopped altogether. These are some indicators and a sign to investigate further. Providing the customer remains in touch with you and can make even small payments, it is usually a better idea to continue working with the customer rather than sending the claim to collections. However, you would not want to offer further credit until the overdue invoices are paid in full. While you are collecting the overdue amount, working for the customer for cash payments are fine.
