With the end of the year fast approaching, now is the time to get a grip on your small business’s year end finances and receivables so you finish 2014 in top shape. With both your business and your customers’ likely to be busier than ever at this time of year, it can be easy for receivables to fall through the cracks unless you stay on top of them. Some customers’ offices may close down for the holidays, making it even more urgent to get paid before they “go dark.” Try these steps to ensure smooth collections:
Stay on top of your receivables. Monitoring receivables daily is the best way to get paid. Use receivables software tools, such as the highly-rated FG Receivables Manager, to track which customers’ payments are due and reach out to them as soon as they’re even one day late. Better yet, contact them before the payment is due to make sure everything is on track. Research has shown that sending proactive reminders to customers increases the likelihood of on-time payment.
Stay organized. Implementing a tool to easily manage and track your accounts receivable is helpful—especially at this time of year, when employees who normally handle A/R may be taking time off and others may step in to pinch hit. Look for an app with a multi-user function so each employee who speaks with a customer can take detailed notes and log their actions on the account. This way, you ensure that you reach out to every customer in the appropriate way. There’s no duplication of effort or embarrassing calls to customers who’ve already paid their invoices. Make sure your AR management tool has CRM capabilities, as well as actual communication recording features like in-app emailing and call recording.
Assess your working capital needs. Many companies have extra expenses at year’s end, such as employee bonuses, holiday parties and client gifts. If you’re in a B2C business where most of your sales occur during the holidays, you’ll need plenty of working capital on hand to cover operating costs such as last-minute orders, paying overtime or hiring temporary employees. Make sure you know how your working capital needs will vary during the last few months of the year.
Monitor your cash flow. To ensure you’ve got the cash you need on hand, review your cash flow daily. Look ahead to the future so you can foresee any potential problems or shortfalls and figure out how to avoid them. Closing out your year end finances are much easier if a little work is done each and every week.
When clients give you lemons, make lemonade. If you discover certain clients simply aren’t paying, don’t let it slide. Figure out the best way to handle the situation, whether that’s by enlisting the services of a collections agency to handle the account or writing off the amount as bad debt on your taxes.
Plan for next year. Every small business owner deals with late-paying or non-paying customers at some point. Use your accounts receivables tools to identify customers whose payment habits tend to be problematic. Then plan a better strategy for handling them in 2015—whether that’s requiring partial or full payment upfront, insisting upon payment on delivery or, in the worst case, ending your relationship with the client.
[Editors Note: If you find yourself or your year end finances in a pinch, check out Insourcing by Funding Gates – we’ll take over your receivables management needs!]
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at [email protected], follow her on Google+ and Twitter.com/Rieva, and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.