How to increase your accounts receivable turnover
The ATO is currently toying with the idea of adding tax debts to credit ratings in a bid to reduce the debt owed to them. As reported in the Australian Financial Review many small businesses are taking around 52 days to pay or receive payments on invoices because of cash flow issues, and as a result are accountable for 60% of the debt owed to the ATO.
It’s a vicious cycle for SME’s: you’re not getting your accounts receivables paid on time, thus affecting your cash flow, which in turn means you’re late to pay your own creditors or even pay yourself a wage.
In the end it all falls down to cash flow management. So here are some quick tips on how to best improve your accounts receivable turnover:
1. Improve your billing efficiency
Aim to generate and send your invoices as quickly as possible after the work is complete or at the agreed billing time, ensuring invoices detail all methods of payment available and clearly note your payment terms.
2. Incentivise for early payment
Offer clients discounts or rewards for early payment of invoices.
3. Take initial deposits or progress bill
Have a set deposit fee, or ask for a percentage of the total quote (20%, 50%) to be paid prior to commencing work or at agreed stages throughout the job. Alternatively if you’re really having issues with your debtors change your policies and ask for all work to be paid for in advance.
4. Positive customer relationships
By generating positive customer relationships through quality and timely work, and maintaining regular communication your customers won’t want to jeopardise the relationship by not paying.
5. Use a system to send reminders
Invest in a CRM system that can monitor unpaid accounts and automatically send reminders, if this isn’t possible find someone in your business even one of your reception staff to take charge of sending reminders or making phone calls for payments due.
6. Be proactive
The worst thing you can do is leave overdue payments for a long period of time. The longer the time the less likelihood of receiving payment. Bite the bullet and make that phone call as soon as the payment is overdue.
You can also visit our 5 questions you didn’t know you could ask your accountant article which further explores how to improve your business cash flow.
Contact us for more information or specific advice!