Are accounts receivable an asset to a business?

US-PDGov

By Adella Fitzroy

Ask any accountant where accounts receivable are held in the financial realm and they will tell you that they are assets, something that benefits a company's financial health. Unfortunately, what some people would consider a benefit might end up being so. The trouble with accounts receivable is that they are a promise to pay for goods or services that have been sold to a customer. So what happens to accounts receivable that are not paid by the customer?

In many cases, accounts receivable can be beneficial to the company who carries them. They are, after all, a promise to pay for goods and services received. In some cases, however, that's as far as they go. Financial failure, malicious intent, and other factors result in debtors to a company failing to make good on their accounts. On the positive side, a company that carries a reasonable amount in accounts receivable can value itself higher using these accounts as an asset on their books.

The usual course of action, after collection efforts fail, is to write a bad account receivable off as a bad debt. Other times, another company might buy a company's accounts receivable as a benefit to them, in which case the selling company is relieved of the burden of the money that is owed.

Some creditor companies turn accounts receivable over to a collection agency or similar company in order to collect payment. Sometimes this is successful, but short of success this course of action often results in more debts that is incurred by the company holding the accounts receivable. Still other firms choose to take their debtors to court, which again can result in a settlement of the amount owed, but can also result in more costs, or even the bankruptcy filing of the debtor, in which case the money is often never recovered.

Another problem that presents itself when a debtor fails to make good on their account is that the company that is carrying the account receivable continues to spend time and money on maintaining the account despite not receiving the benefit of the money that is owed.

Perhaps one of the biggest problems with the failure to collect on an account receiving is that even though work was performed or goods were delivered, and money was not received to compensate for the time and materials rendered, that time and those materials used in the engagement of the goods sold were still paid for by the creditor company, which again fails to receive benefit and goes into arrears for the product and/or labor involved.

The solution used by many companies is to not offer credit. For this reason certain sales might not be made, and either client companies will either wait until they can purchase with cash or they might even go to a company that will accept their credit. The chance of this happening is up to the potential creditor. Only time and a history of results will determine the best policy for the credit company in the long run.

About the author: Adella Fitzroy is a small-business owner who received funding and financial advice from EBF Group Ltd. She found that the advice she accumulated and received from the company was important in helping her review the progress and profit of her company.

Tips for keeping your business flush with cash

US-PDGov

By Kelli Cooper

Unless you operate a business where you receive payment immediately upon your customer or client making a purchase, finding ways to maintain a steady infusion of cash is probably a top priority for you; and, if you are like many small business owners, you may be struggling with keeping the flow as steady as you would like it to be. The money you earn from offering your goods and services will really serve no useful purpose until you actually receive it, so here are some tips to make sure you get it in a timely fashion.

 

Evaluate terms with customers and vendors

If cash flow is a problem, it may be time to take a good hard look at the terms you have set up with both customers and any vendors of your own. If your time frame for receivables is 60 days, you might benefit from changing it to 30; you might also consider making changes such as requesting down payments or requiring payment immediately upon completion of a service or delivery of a product. If your payments to vendors and payments being received from clients is not ideally aligned, you might consider asking to change payment dates to vendors to a time when you will be sure to have money from your clients.

 

Set clear terms with customers

Clarity is a key first step in executing any successful endeavor—to get something accomplished, you need to be very clear on exactly what it is you want to get done. Make sure you have very clear terms with your customers regarding payment—when it is expected and how you want it done. It should always take some written form, whether you clearly outline it in a contract with new clients or it is part of your website. Clearly outline information regarding interest for late fees and any collection costs that will be passed onto the client in the event you turn to an outside agency to pursue payment.

 

Consider accounts receivable financing

If your payment terms are 30 days out or more and you are really hurting for cash now, you might consider using the services of a receivables financing company; this involves selling your receivables to a company now for immediate cash. Of course, on top of paying the money back to the company when you get the payment from the client, you will also have to pay their fee for giving you the money. When considering this option, you have to carefully weigh whether getting that money immediately outweighs the extra money you need to lay out for the service.

 

Carefully evaluate customers, suppliers and inventory

To get the best idea of how to improve cash flow, it is important to separate and evaluate the three major areas of customers, suppliers and inventory carefully. When it comes to inventory,  carefully evaluate how different items are selling and where your money is going. You might find you have a lot of money tied up in products that sell infrequently. As for suppliers,  look to reach out to the ones you work with regularly to try and work out better terms and discounts—you may not have much leverage with one-off buys, but it does not hurt to ask when looking to make a purchase. Keep a close eye on customers and really get on those slow-payers. There may be some easily solved problem that explains their constantly late payments, like frequent invoicing errors.

About the author: Kelli Cooper is a freelance writer who enjoy sharing tips on how businesses can improve their financial health.

Cash management tips for small businesses

US-PDGov

Are you flabbergasted witnessing relatively handsome profits on paper but less cash flow in reality? The stark discrepancy in the accounts might be a result of inefficacious cash management which, if overlooked might land your business on the rocks.

Ineffective management of cash in a small business is not seen with a favorable eye by investors, who would obviously not want to invest in a company, which has no stability. Hence, to keep your company viable, it is imperative to learn the ways of managing cash efficiently so that the cash not invested on any fixed inventories is available to you in optimum amounts at any given point of time. Here are a few tips on managing your cash flow effectively. 

Timely payment – One of the biggest causes of small businesses going bankrupt is customers not paying on time. To ensure that your customers are not delaying your business deals, you require to be on your toes to prepare and send your invoice as soon as the goods are delivered to your customers. A mention of penalty charges in case of payment received post due date can speed up the process. 

Laying off or tightening credit for customers- When your customers fail to pay you on time, you too get delayed in paying off your suppliers and a vicious circle is created. In order to ensure that your working capital is managed effectively it is required at times, to lay off certain customers who have not paid dues for a considerably long time or to restrict credit lines for those who have been constantly delaying payments. Of course, you cannot take such a step suddenly and it is essential to analyze the history of payment of the customers on grounds such as how many days or months they are behind, whether they have paid the full balances after a lapse of the due date and the likes. 

Analyzing new customers- While keeping a track of your old customers you cannot simply rely on the new ones that you are getting linked with. Therefore, if your customer is asking for goods on credit it is important to check into their financial background and past credit records. It is also advisable to refrain from sending further orders till the time the past dues are cleared. If your customer is unable to pay the whole amount, try to convince them to pay in installments. 

Managing taxes- Business entrepreneurs are often seen burdened with too many taxes and if you too are facing such a situation, it is time that you sit to discuss ways of optimizing tax outflows with your attorney. 

Managing communication and inventory costs- Doing away with too much money spent on communication in the form of telephone bills is an equally important thing in cash management. Instead of splurging on phone and mobile bills, resort to Voice Over Internet Protocol or VOIP systems as an option for effective and inexpensive means of communication. In case of inventories, do not order more than is required, while attenuating on the quantities of those, which are not selling frequently. 

Finally, growing the surplus cash either by creating a savings account or by investing it in some other way is a sure way to boost your business by efficacious cash management.