Managing Your Receivables

In today's difficult economy, proper cash flow management is more important than ever for almost any organization. One of the most common causes of cash flow problems is poorly managed accounts receivable.
Poorly managed receivables may necessitate drawing down your reserves, or increasing the amount of financing you require. As delinquent accounts get older, the probability of collecting those accounts diminishes, and account write-offs increase. In addition, the more cash you have tied up in receivables, the less cash that is available for running your organization.
For charities and not-for-profits, slow collection of donation pledges and annual membership dues can put a strain on cash flow. While donations and membership dues are not technically accounts receivable, many of the same best practices can be applied to accelerate cash inflows from these funding sources. Awareness of good accounts receivable practice is also becoming imperative for many not-for-profit organizations now engaging in the sale of products and services to generate income.
Described below are a number of suggestions for improving your receivables processes, which in turn should improve your cash flow and strengthen your bottom line:

1. Email invoices. This will ensure your customers receive your invoices immediately, avoiding mail delays. Ensure that you confirm with your customers which email address they wish you to send invoices to.
2. Shorten payment terms. In the days of paper invoices and cheques, it was fairly common for businesses to extend credit to customers to allow for mail and payment delays, by granting credit terms, for example "Net 30". However with the widespread adoption of email communication and electronic payment methods, businesses are now more commonly specifying "Payment due upon receipt".
3. Permit EFT as a payment option. An increasing number of businesses are now paying their suppliers using EFT (Electronic Funds Transfer). By specifying on your invoice that payment may be made by EFT, you will enable your supplier to deposit payment directly to your bank account. Simply include on your invoice your EFT banking information (bank, branch and account number).
4. Monitor the age of your receivables, and systematically follow-up on any accounts that are past due more than a predetermined number of days. A good practice is to run an aged receivables report from your accounting system on a weekly basis, paying special attention to any receivables that are over, for example, 30 days old.
5. Follow-up with telephone and/or email. Follow-up unpaid accounts with a phone call or email if payment has not been received within a reasonable time after invoice has been sent. Written collection letters are usually less effective as they do not engage the customer in conversation in the same way that an email or telephone call does.
6. Maintain a collections record. For each over-due account, keep a log of when follow-up calls or emails were sent, along with a record of customer's responses to follow-up calls. Knowing what your customer said to you (for example promises to make a payment by a certain date) will be invaluable if additional follow-up calls are required.