Many businesses provide their products and services on credit. Selling goods and services on credit is a marketing and business strategy that encourages customers to increase the amount of their spending and increase the frequency of their spending.
Accounts receivable is referred to the money that is due to a business for the goods and services to their customers on credit. For example, a customer purchases a watch for ₹50,000 on credit. Till they pay that amount, that amount will be listed under your accounts receivable.
On the balance sheet, accounts receivable is categorized as a current asset. Most businesses offer a credit period of 30-45 days on consumer goods. They even charge a late fee as a penalty for defaulting on timely payments.
However, the one downside of offering credit is late payments. Many-a-times, customers need to be reminded numerous times to pay the amount due to the business. For companies with large operations and hundreds of thousands of customers, it can be a big task to send invoices and reminders to their customers to pay the due amount.
Therefore, major corporations employ accounts receivable services for such tasks. These services will send invoices and payment reminders to customers on behalf of the business. Accounting outsourcing firms and chartered accountancy firms offer such services, accounts payable services, and basic bookkeeping and accounting services.
The Following Are Some Tips To Effectively Convert Accounts Receivable Into Cash-
- Send Invoices- This is the most effective and easiest tip to convert your accounts receivable into cash. Many-a-times, your customers might simply forget about their due payments. Therefore, it is your duty as a proprietor to send your customers an invoice in which it clearly states your business’s credit policy along with the date by which they should make their payments.
- Have a proper accounts receivable cycle- It isn’t lucrative for a small business to have a long one. This is because customers might forget or take their time to pay the due amount, and for a small business with a small customer base, a long credit cycle isn’t very lucrative. Small businesses should offer short-term credit and clearly state the terms and conditions of their credit facility.
- Incentivize timely payments- As a business, you can take several strategic steps to incentivize timely payments. For example, you can encourage timely payments by offering discounts to customers on their next orders if they pay within the stipulated credit period. Businesses can incentivize timely payments by offering their customers premium features such as store credit on future purchases or cheaper store membership.
- Repeated payment reminders- Proprietors must send their customers repeated payment reminders in the days leading to their due date. It is quite common for people to forget about purchases made on credit. Therefore, businesses can set an automated payment reminder that reminds customers to pay for their purchases. Businesses can outsource this service from firms or even use software for the same.
However, while automated reminder messages are effective, they are ineffective than communicating via a call. This is because many people might not frequently check their inboxes. Phone calls are a more direct way of communication. Not only will the customer representative be able to remind the customer of the due payments, but it can also give the customers a chance to discuss the reason for their delayed payments.
Hopefully, these tips will come in handy and allow your business to convert the accounts receivable into cash effectively. Accounting outsourcing firms have made converting accounts receivable into cash a simple and hassle-free job.