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As a small business owner, cash flow is crucial for the survival and growth of your business.
A critical aspect of maintaining positive cash flow is managing your accounts receivable (AR) - the money that customers owe you. In this blog post, we will share practical tips and strategies that small business owners can implement to manage their AR and improve their financial health effectively.
Create a System
First and foremost, it's essential to have a system in place for tracking your AR. This includes setting clear payment terms and a schedule for following up on unpaid invoices. As a small business owner, you may not have the resources to invest in expensive software, but there are many free and low-cost options available such as Quickbooks invoicing, Wave, and Zoho Books. These systems allow you to send invoices, track payments, and set reminders for following up on unpaid invoices. Additionally, consider using electronic payment options like PayPal or Square, as studies show that including a direct link to pay can increase the likelihood of payment.
Regularly Review Your Aging Schedule
Next, regularly review your AR aging schedule, which shows how long invoices have been outstanding. This will help you identify customers who are consistently late with their payments. For these customers, it's essential to set clear consequences, such as not prioritizing their work or firing them if they don't communicate and continue to pay slowly. And no, you shouldn't feel guilty for collecting on invoices for work you've done. Your business needs this money to survive, so you have to find a balance between working with the customer who continues to pay late and doing what is best for the health of your business.
"You shouldn't feel guilty for collecting on invoices for work you've done! Your business NEEDS this money to survive"
Communicate Frequently
Frequent communication is key when managing AR. Consider sending your customers AR statements regularly, whether weekly or bi-weekly. This will help them stay aware of their unpaid invoices and hopefully prompt them to pay sooner. Additionally, always follow up on unpaid invoices. You can set automatic reminders or send personalized emails that lead with a question about whether there is anything you are missing on your end.
What it all comes down to
Managing your AR can be daunting as a small business owner. But by implementing these practical tips and strategies, you can take control of your finances and ensure the survival and growth of your business. Remember to have a system for tracking your AR, regularly review your AR aging schedule, and approach customers with compassion and understanding. Doing so can maximize your cash flow and avoid the stress of chasing unpaid invoices.
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