Most business owners and investors would agree that extending credit to reliable customers helps a business by increasing sales and profit.  However, what happens to a business if they choose to do this but don’t know how to properly account and track their AR, or worse, don’t take the time to manage their AR?  There are a number of negative side effects that come with not taking the time to properly manage your AR or ignoring it altogether.

Here are some problems you might encounter:

Missed payments: Sometimes clients simply forget to pay, or perhaps they have an unreliable accounting system in place that doesn’t help them pay in a timely manner.  Either way, your business will notice the lack of cash.

Unsent invoices: Most basic accounting systems will automatically send invoices and give you a status but you shouldn’t trust that all invoices are being sent.  It’s wise to perform regular audits of your books and invoicing to ensure clients are receiving their invoices in a timely manner and based on the credit agreements you have in place with that client.

Lack of cash flow:  The two problems above will ultimately lead to lack of cash flow.  If you continue to perform services and pay for inventory without money coming in, you’ll find yourself in trouble fairly quickly.  What would happen if your business was unable to meet payroll, pay rent or take advantage of a business opportunity when it presented itself?  These are all consequences of failing to take the time to properly manage your accounts receivable.

If you are a company that extends credit, there will always be a need to hold an allowance for bad debt.  There are ways to reduce defaults and late payments and effectively collect your cash in a timely manner – if you’re struggling to manage your AR, we can help.