Accounts Receivable Management and Collection Assistance

As a small business owner, you always strive to keep a close eye on your cash flow. There are times when your cash flow ebbs and flows, and in lean times, you need cash reserves to cover any deficits and continue to pay your bills.

Sometimes there can be challenges caused by your company’s accounting processes that are affecting your cash flow. These challenges can be identified and corrected often by gaining a better understanding of accounts receivable and collections to ensure you’re handling these accounting issues in the best way possible.

This guide provides you with an understanding of accounts receivable management and collection assistance:

What Are Accounts Receivable?

“Accounts receivable” is an accounting term used to define any money owed to your company for goods or services you’ve already provided to the customer but haven’t yet received payment. These accounts appear on your balance sheet as an asset even though you haven’t been paid.

If your accounts receivable are too high, your cash flow can become difficult because you have paid for the product or labor associated with the sale, however, you haven’t received compensation from your customers and clients. Many companies offer 30 – 60 day terms for payment which means they are effectively offering short term financing to their clients and customers. This delays payment and can cause difficulties in cash flow.

As an aside, it is important to note that accounts receivable and accounts payable are not the same even though they sound similar in name. Accounts receivable are amounts your customers and clients owe to you. Accounts payable are amounts you owe to your vendors.

How Does This Impact Your Business?

The largest impact accounts receivable can have on your business is through your cash flow. A healthy amount of accounts receivable doesn’t necessarily equate to a healthy cash flow. The goal is to create a cycle where new accounts receivable are being created while older ones are paid by your customers.

Accounts receivable are considered an asset of your business since your customers are legally obligated to pay them. This means that a significant number of accounts receivable can increase the value of your business.

The value of your business and the available assets become important if you need to get a business loan to grow or to cover a temporary cash-flow problem. The financial institutions will look at your accounts receivable as well as other factors. If you want to sell your business, accounts receivable can increase your asking price.

Ways MHA Can Help

Maintaining healthy accounts receivable is complicated. Some companies like to run credit checks on customers to help control loss. Other companies incentivize clients and customers to pay earlier by offering discounts or holds on interest charges. In all cases, collections need to be a part of the business practices on a consistent and recurring basis. At McNurlin Hitchcock, we can provide you with the assistance you need to handle this process.

Our team can oversee customer invoicing and collection activities. Once the customer pays the invoice, we can process the payment and mark the invoice as paid.

We have reports in place to ensure that your accounts receivable are being paid on time. When you need to leverage your accounts receivable to secure a loan or entice new backers for your business, our team can create reports that highlight your assets and the health of your accounts receivable.

What Are Collections?

Sometimes, your customers don’t pay their invoices on time, and you need to collect the money owed. Collections is a process created by your company to try to collect the money owed in accounts receivable.

Many small businesses will create their own process to try and collect these debts, however, it can be uncomfortable to call a customer and demand payment while still working to retain the customer as a valuable asset of your company.

There are many reasons that a customer might have an invoice fall into collections. It might be an oversight on their part, or they might have a temporary cash-flow problem. Some customers might be overextended, and you’ll need to be aggressive about collecting the money owed, and it’s essential for the health of your company that you do collect it.

What Is the Typical Business Process for Collections?

Many small businesses have a process in place to collect on past due accounts receivable, and these efforts are rewarded to various degrees. Here’s a look at a typical process for collections:

  1. Run a report in the company’s accounting software to identify any accounts receivable that are past due. This is usually done once a week or once a month.
  2. Send a new invoice to the customer and mark it as past due. Some companies will include a late fee on this invoice, especially on older invoices.
  3. Call the customer and speak to their accounting department. This is an attempt to get immediate payment or an agreed-upon payment arrangement.
  4. Turn the accounts receivable over to a professional collection agency.
  5. In extreme cases, you may need to write the account off your balance sheet because you don’t believe you can ever get payment.

This is a basic outline, and your business might have variations.

Ways MHA Can Help Your Business With the Collections Process

From running your financial reports to sending out past-due invoices, McNurlin Hitchcock can help your business with the collections process. Our team of CPAs can provide you with as little help as you need, such as running a weekly report or taking over the entire collections process for you.

We have the skills and experience necessary to approach your customers in a respectful manner to request payment, and we also know when it’s time to push a little harder. You can let us handle your collections while you do what you enjoy most.

Hire a Partner You Can Trust

Your account receivable management and collection efforts are essential to the overall health of your company’s cash flow, and you need to find a partner who can help you keep them in tip-top shape. A CPA understands the nuances of accounts receivable and collection efforts. At McNurlin Hitchcock, we’re ready to partner with you to keep your company’s finances in order. Learn more today.