Accounts Receivable

Accounts feceivable is another one of the cash-flow drivers of any business, whether General Motors or Corner Drugstore LLC. Managing accounts receivable is as important as managing accounts payable in keeping your business afloat.

Accounts payable are those funds you owe other people. Accounts receivable is what they owe you. Once you sell something to somebody, every day you don't get paid is lost money. In fact measuring the number of days people take to pay you you is critical.

A friend of mine who does forensic architecture has insurance companies for almost all of his clients. They take on average 180 days to pay. It's like lending money to your customers.

You should do everything you can to get payments in the door. But if a customer is in trouble, work out something with him so that at least you get some of your money. Be nice, you might need him some day.

Sometimes it helps to charge a service fee for payments outstanding after some number of days. Or you might offer a discount for early payment. You may not be able to enforce it in court, but it might encourage customers to pay you earlier.

The biggest problem with small businesses is that they don't send bills out in a timely fashion. Once a service is provided or a product is sold, get a bill out to them. Our accountant still hasn't billed us. We want to pay him, but we need a bill because we don't know what to pay. Don't let that happen to you.

You can look up accounts receivable on Wikipedia or go to any accounting book or website and it will tell you all about them.

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