How long will it take to collect your receivable?
This is an important questions to answer, especially when you’re planning cash flow (see my video on Cash Flow Projections).
Most businesses have a built in assumption that they will collect all accounts receivable within 30 days of billing and even within that I know I can walk 10 people through their own accounts receivable and they will immediately begin to identify clients who always take longer to pay vs those who consistently pay immediately.
Managing your accounts receivable collections a little more closely will help you in a few ways.
- Shine more light on the clients who consistently pay late
- Plan your cash flow outside of what the “terms” say
- Get a better handle on your cash flow and expected accounts receivable balances
Shine more light on the clients who consistently pay late and see the impact on cash flow.
Shouldn’t you prioritize the work you do and whom you do it for based on how they prioritize you? I’ve learned that the ones you take the longest to pay are the ones you usually demand the most, want it right away and are never satisfied. Wouldn’t you rather focus on the clients who never give you a hard time about paying, always appreciate what you do and show that appreciation by paying immediately?
Plan your cash flow outside of what the “terms” say.
Even if your terms say 30 days, we know that many clients will not pay that way. If you are in a business like construction where the terms are frequently more than 30 days to begin with, then you definitely want to take a deeper look at what is in your accounts receivable balance and when you expect to collect it.
Get a better handle on your cash flow and expected accounts receivable balances.
If you are projecting your accounts receivable and you know your collections never really work out to be exactly what you would hope to see based on your terms then it will help you to plan each account very specifically in terms of when you can expect to collect.
The video below will show you how to very specifically plan the collection of your accounts receivable so that you can have predictability: