As a seasoned CFO with over 30 years of experience as a financial executive working with a wide range of businesses, I’ve seen that cash flow problems often stem from poor Accounts Receivables (A/R) processes. If you’re making any of these common A/R mistakes, I recommend you fix the situation ASAP!
• Having incorrect information in your system – As they say: garbage in, garbage out! Make sure that part numbers, prices and other details are entered correctly in the first place. And don’t forget to input price changes when they occur.
• Taking your time getting bills out – If you want to be paid on time you need to make billing a priority. Ideally, what you sell today gets billed tomorrow, so your customers have an invoice in front of them immediately. This way if your terms are X days from delivery of the goods, your customer has plenty of time to process their payment before it’s due.
• Sending out error-filled invoices – Your customers will reject incorrect bills. Some of the most common invoice errors that I see are:
• Wrong part numbers – Either the wrong part altogether, or the wrong variety or container size of the correct item.
• Wrong quantity – Billing for more or less than what was delivered, or misestimating how far along a job is for a progress-based bill.
• Wrong prices – Especially when the customer has been promised something other than your standard prices.
• Wrong sales tax amount – Taxing a non-taxable item (or vice-versa), or applying the sales tax rate from the wrong city or county.
• Ignoring customer balances – Are they paying their bills on time? Have they exceeded their credit limit?
• Avoiding collections – What often happens is that a company gets into their “busy season,” and the Accounting department struggles to keep up. Instead of reviewing the aging reports and making timely collection calls, they put statements in the mail and hope for the best.
• Failing to build relationships – Few bookkeeping professionals understand the value of building positive relationships with the Accounts Payable people at their customers’ sites. But the reality is, these relationships can get your bill in the first pile of bills to pay after the “must pay” items (such as electricity)—not in pile number six.
Need help getting your A/R processes in order? Give me a call. As your part-time CFO, this is one of the many services I provide.