Accounting and Bookkeeping: Dealing with accounts receivable
As a business owner, one of the most difficult challenges you may face is managing accounts receivable. While most customers pay their invoices on time, there will always be a few who stretch out their payments or even ignore them completely. In such cases, it’s important to be prepared and have a strategy in place to help collect the money that’s owed to you.
Communication is key in any business relationship, and it’s no different when it comes to collecting outstanding invoices. Reach out to your customer and try to work out a payment plan that suits both parties. If that doesn’t work, sending a demand letter can be a more aggressive tactic. A demand letter is a legal document that lists the amount owed, the deadline for payment, and the consequences of non-payment. It’s important to make the demand letter looks professional and authoritative, and it’s best to send it via certified mail.
However, even a demand letter may not work, and it may be time to seek outside help. There are collection firms that can assist you in collecting the debt, but it’s important to note that this should be a last resort. Collections should only be used for accounts that you don’t intend to do any future business with, as it can permanently damage the relationship.
It’s also important to keep your financial backers informed if you have a customer who is in arrears. If the delinquent customer is a material one that has a significant impact on your financial standing, you should be upfront with your bank or any other firms that support your business. Being transparent and working to resolve the issue can help maintain these important relationships.
Ultimately, managing accounts receivable is about balancing the need for cash flow with the importance of maintaining good business relationships. It’s a delicate balance, but with the right strategy and communication, you can collect the money that’s owed to you while also preserving important business relationships.